Green Building & Environmental Trends : Green Building & Construction LEED AP Consulting : Rich Cartlidge : Environmental Trends, Urban Development

Poorly performing buildings are perhaps the greatest threat to green building certification systems such as LEED. In an effort to combat these poorly performing buildings a new danger is being created.The USGBC wants to tackle poorly performing buildings by increasing the amount of data available and as part of that goal has laid out their  plan for doing so here.(PDF) LEED is certainly moving in the right direction by seeking to make more data available in regards to building's performance. However,  a building labeling system such as that being floated by both the USGBC and as part of the Waxman-Markey Climate Bill could derail the momentum of the green building movement and spur litigation.

To be effective a green building labeling system must cover ALL buildings and not just the newer, LEED certified buildings. Whether this label is an actual physical label attached to the building or a "virtual" label where information is stored online and made accessible over the web remains to be seen. A physical label would be less susceptible to fraud but also raise the potential for discrimination.

Preston over at Jetson Green summarized the framework for a labeling system under the the Waxman-Markey Bill as follow:

• The Administrator of the EPA shall create the labeling program to apply to both the residential and commercial markets. 
• The purpose of the labeling program is two-fold: (1) to enable and encourage knowledge about building energy performance of both owners and occupants, and (2) to inform efforts to reduce energy consumption nationwide. 
• The Administrator is to consider already existing programs, such as Energy Star and the HERS index, while developing a model label. 
• The Administrator will create a report telling Congress which building types have measurement protocols and labeling requirements with energy performance data (and which don't). 
• The Administrator is to propose measurement protocols and detail how to complete performance labels.
• The Administrator will provide a final rule detailing measurement protocols and requirements for applying the protocols. 
• The Administrator shall propose a model building energy label within one year after the date of enactment, and the label will show achieved performance (and, interestingly, will not preclude designed performance data).  
• The Administrator will then publish a final rule containing the label applicable to covered projects. 
• The Administrator will coordinate with Zero Net Energy Commercial Buildings Initiative to provide labeling demonstration projects for all sorts of different building types. 
• The Administrator will work with state energy offices or other state authorities to implement the program, and will also work with these officials to encourage use of the labeling program at the local and county level. 
• States are to implement the label in such a way that the information is available to owners, lenders, tenants, occupants, or other relevant parties that can utilize the information.
• Three years after the date of enactment, the Administrator will report to Congress on the effectiveness of the program and the need for any legislative changes. 
• The Secretary of Energy and the Administrator will use the program in their agencies and try to get other agencies to implement the label. 

 A building labeling system will surely create litigation. Whether the litigation will involve the actual labels themselves or the methodology and regulations established by the government in the label's implementation remains to be seen. What are your thoughts?

A big thanks to Preston and Jetson Green for their excellent coverage of this topic.

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It is my honor this week to have Mark Rabkin of Althans Insurance Agency present a guest post dealing with green building and the surety. The issues surrounding green building and the various bonding and insurance issues remain an enigma to many of us but Mark definitely has his finger on the pulse of the issue and is an invaluable resource for anyone involved in the construction industry. Mark is very active on Twitter where he can be contacted @MeRabkin.

When a large, publicly funded construction project is sent out to bid, each contractor that is vying for a piece of the pie must submit a bid and performance bond in conjunction with their application. The bid and performance bond is underwritten by a surety company and provides a financial guarantee to the owner of the project that the contractor will comply with the terms of the construction contract. Should a contractor fail to perform, the surety company will either pay the current contractor to complete the project or hire another contractor to either fix the errors caused by the first or complete the job if the original contractor becomes insolvent. The surety company will then pursue the original contractor to collect on the defaulted amount. 

As indicated above, a surety bond is meant to guarantee the performance of a contractor as per the construction contract. The surety underwriters evaluate a “risk” based on their financial position, overall industry expertise including managerial experience and familiarity with the construction methods upon which they are bidding. It is important to note that the most critical component of a final bond is the actual contract that is entered into between the various parties involved. Should the contract contain language that is onerous to either party, a surety will either refuse to bond the contract or seek to have that specific language excluded or stricken from the contract. For example, extended warranty periods or usurious liquidated damages clauses are significant red flags to surety underwriters and legal departments.

Building projects that are registered for certification by an independent third party such as the US Green Building Council are rapidly growing in number. Many federal, state and municipal entities now either require or encourage new construction, major renovation or leased space to demonstrate some level of environmental stewardship throughout the construction process or energy efficiency within the subsequent operation of the facility. There has been much debate within risk management circles regarding the possibility that a project could fail to either achieve certification or attain a specified level of achievement. These situations could result in lost revenue opportunities for the loss of tenants, lost tax incentives, utility expenses higher than promised or any other failure to achieve an expected benefit of the proposed project. To protect themselves, project owners will look to transfer the risk to the design team or construction contractors and subcontractors. It should be noted that most if not all sureties will refuse to bond a contract that contains language that guarantees certification by a third party entity such as the US GBC or seeks to guarantee a specific level of energy efficiency.

Traditional general liability insurance defends and protects contractors for bodily injuries or property damage caused by the insured party’s negligence. It does not provide for defense or indemnification for claims due to breach of contract. Should a third party claim financial injury due to the negligence of a contractor, professional liability coverage (also called errors and omissions) could respond. This coverage is available in the market for construction companies and is increasingly necessary as more contractors are obtaining accreditation as “specialists” upon successfully earning their LEED-AP designations. 

Mark E. Rabkin is a triple bottom line risk manager for Althans Insurance Agency in Cleveland, Ohio. He counsels clients on the risks faced everyday that impact his client’s financial, social and environmental exposures.

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