An Overview of Issues in
Designing and Building Green
The material provided herein is for informational purposes
only and is not intended as legal advice or counsel.
Overview of Statutory,
Regulatory, and Policy Factors
Driving Green Building
Edward A. Hogan
Federal
• Energy Independence and Security Act of 2007
(became law Dec. 2007)
Goal of zero net energy commercial buildings for:
– any commercial building newly constructed in the U.S. by
2030
– 50% of commercial building stock of the U.S. by 2040
– all commercial buildings in the U.S. by 2050
Establishes Office of Commercial High-Performance
Green Buildings at USDOE
3
Federal
• American Clean Energy Leadership Act
(S.1462) (reported out of Committee June 17, 2009)
– Establish improvement targets for national model
building energy efficiency codes (energy savings
of 30% in codes released during and after 2010
and 50% during and after 2016)
– Establish path to achieving zero net energy or
“carbon neutral” buildings
– Authorizes creation of model energy performance
labels for commercial buildings to provide
comparative information on building energy use
4
Federal
• American Clean Energy and Security Act of
2009 - “Waxman-Markey Bill” (H.R. 2454,
approved
June 26, 2009)
• Clean Energy Jobs and American Power Act “Kerry-Boxer Bill” (introduced Sept. 30, 2009)
– both propose to reduce greenhouse gas
emissions up to 17% below 2005 levels by 2020,
42% by 2030, and up to 83% below 2005 levels by
2050
– both propose national energy efficiency building
codes
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Federal
• USDOE & USEPA National Action Plan
for Energy Efficiency
– Public-private initiative to improve overall
energy efficiency, including in buildings
• USDOE Zero-Net Energy Commercial
Building Initiative
– Promotes development of marketable zeronet energy commercial buildings
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State
• Global Warming Response Act (July
2007)
– target greenhouse gas emission reductions
to 1990 levels by 2020 and 80% less than
2006 levels by 2050
– improving energy efficiency of buildings is
essential to meeting targeted emission
reductions
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State
• Legislation
– A host of legislation proposed and/or
adopted to facilitate green building
• NJ Energy Master Plan
– Promotes improving building code energy
efficiency standards
– Develop strategies to achieve zero net
carbon emitting buildings
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NGO Initiatives & Policy
• US Green Building Council – LEED rating system
• ASHRAE – improve commercial building energy
codes 30% by 2010
• Architecture 2030 - “The 2030 Challenge” to make all
new buildings/renovations 50% more energy efficient
now and carbon neutral by 2030
• Business Environmental Leadership Council; US
Climate Action Partnership – corporate driven efforts
to improve energy efficiency, including in buildings
• Clinton Climate Initiative Energy Efficiency Building
Retrofit Program
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Overview of Energy
Demand/Supply/Cost Factors
Driving Green Building
Christopher Stevenson
Energy
Demand/Supply/Cost
• A shift towards energy conservation,
efficiency, and alternatives, of which green
buildings are an integral component, is being
driven by the confluence of:
- increasing demand for energy
- declining reserves of non-renewable
energy resources
- rising energy costs
- sustainability concerns
11
Energy
Demand/Supply/Cost
• Energy demand factors
– Global population rise (projected 37% increase
before peaking in approx. 2050; 6.7B presently to
9.2B)
– Global economic growth (newly developing and
thriving world economies significantly increasing
oil and energy consumption, adding to the
developed world’s high demand for energy)
– Increasing population, economic growth, and
standards of living will result in increased energy
consumption, reduced nonrenewable energy
reserves, and increased energy prices
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Energy
Demand/Supply/Cost
• Energy supply factors
– Conventional oil reserves are declining
each year; most of the easily-recoverable
oil has already been pumped;
– Unconventional oil sources (tar sands,
shale oil), although significant, are difficult
to exploit because production is intensive
in terms of energy and water use and
carbon release
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Energy
Demand/Supply/Cost
• Energy supply factors (cont.)
– Coal - significant reserves, but significant CO2
concerns in light of carbon reduction goals; “clean”
coal technology and carbon sequestration not yet
fully developed or certain
– Gas – domestic reserves limited; importing poses
LNG siting and transport issues
– Nuclear power – future expansion uncertain in
terms of scope and time
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Energy
Demand/Supply/Cost
• Energy supply factors (cont.)
– Other energy technologies are not yet fully
developed and/or cannot provide adequate
substitute power
– “Peak” oil and gas
• Charles T. Maxwell, “dean of the energy analysts”, calls
for peak oil by 2012-2015 and irreversible decline in
supply after 2020
• International Energy Agency projects peak oil in 2020
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Energy
Demand/Supply/Cost
• Energy supply factors (cont.)
– US Energy Information Admin. projects US gas
production peak in 2022
• Energy cost factors
– July 2008 shock – oil hits $147/barrel
– Maxwell has projected $300/barrel oil in 2020
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Energy
Demand/Supply/Cost
• Energy cost factors (cont.)
– NJ Energy Master Plan
– Projects energy expenditures in NJ will almost
double between 2005 and 2020
– Describes as “unacceptable” the “economic,
reliability, and environmental consequences of the
‘business as usual’” approach to energy
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Energy
Demand/Supply/Cost
• Thus a critical need for energy conservation,
efficiency, and alternatives, such as green buildings
provide
• Maxwell’s solution: “…deep conservation while
heavily investing in alternative energy…”
• NJ Energy Master Plan solution: Energy
conservation, efficiency, and alternatives
• Buildings account for almost 40% of US primary
energy use (and carbon emissions) and thus a shift
to green buildings, with the goal of zero-net energy, is
essential to achieving an affordable and viable
energy future
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Green Building Toolkit
Michael Kerwin
LEED Overview
William Amann
Financing Green Buildings
William Lashbrook
Green Finance – A Legal
Perspective
Jesse P. Nash
22
I. Understanding the Bank’s
Perspective
• The Construction Lender’s Mindset: generally
conservative, non-entrepreneurial, relatively slow to
embrace new and untested concepts and innovation.
– Green Building poses interesting underwriting challenges for
construction lenders, including:
•
•
•
•
•
Lack of track record for Green Buildings
Obsolescence in building materials and methods
Uncertainty inherent in third-party certification process
Capital market upheaval
Market uncertainty generally
– National Consensus Green Building Investment Underwriting
Standards: Acknowledges that real estate assets achieving
ENERGY STAR, LEED and/or Climate Neutral certification
can have superior relative financial value and risk profiles
which should have an impact on underwriting decisions.
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I. Understanding the Bank’s
Perspective
• The bank will know far less than the construction
loan applicant about Green Building generally
and the relevant project specifically. Be ready to
sell it.
• No lender wants to be the first.
– Consider working with lenders with a Green Building track
record.
– Retain a design and construction team with relevant
experience, and feature this experience in discussions
with the lender.
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II. Deal Points – Lender
Issues/Borrower Responses
• Lease Economics:
– Higher construction costs must generate higher
rents. Be ready with economic justification for
your project.
• Project branding.
• Lower energy costs = higher rent.
• Employee retention/productivity increases.
– Market Analysis:
• Be ready to present relevant market data and a favorable
comparison of the proposed project with competing
buildings.
• Be ready with a marketing plan that optimizes attraction
of Green Projects.
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II. Deal Points – Lender
Issues/Borrower Responses
• Lease Deal Points:
– What is the precise nature of the builder’s
commitment regarding Green aspects of lease?
• Negotiate for softer “intent to achieve” language.
Present a view of third-party certification process as
collaborative.
• Negotiate reduced rent or rent abatement as opposed to
termination right.
• Consider whether escrows will be necessary to mitigate
lender’s risk of borrower’s lease default.
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II. Deal Points – Lender
Issues/Borrower Responses
• The Takeout: Availability of institutional
money to repay temporary construction loan.
– Attraction project will have to takeout financing will
be a major factor in the underwriting decision.
– Takeout commitment improbable at initial stages.
– Takeout will hinge on lease economics.
– Consider impact of on-going compliance
obligations/recertification.
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II. Deal Points – Lender
Issues/Borrower Responses
• The Building Process:
– Lenders may examine the green building experience of
the architect, contractor and subcontractor, and make
approval of such professionals a condition of financing.
– Relative responsibilities of parties involved in
construction must be clearly detailed.
– Be ready to suggest methods for harmonizing loan
disbursements with third-party certification milestones.
• Governmental Incentives?
– Tax benefits?
– Expedited approval process?
– Density bonuses?
28
Funding and Tax Incentives
for Green Building
William Amann
Tax Aspects of Building
Green
Melinda Fellner Bramwit
Current Economic Climate
Bush and Obama Administration Efforts in
2008 and 2009
Legislation- enacted and pending
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Federal Incentives
• Deduction for Energy Efficient
Commercial Buildings- Section 179(D)
of the Internal Revenue Code of 1986,
as amended (the “Code”)
• Parallel for homeowners- Section 25C
deduction- Energy Star
32
Federal Incentives
• Credit for producing electricity with
renewable sources – Section 45 of the
Code- the production tax credit
33
Federal Incentives
• Credit for investment in alternative
energy property- Section 46 and
Section 48 of the Code
• Temporary election
34
Federal Incentives
• Credit for investment in qualifying
advanced energy projects- Section 48C
of the Code
35
Federal Incentives
• Carbon dioxide sequestation creditSection 45Q of the Code
36
Federal Incentives
• Clean renewable energy bonds
37
Federal Incentives
• Small wind investment tax credit
38
New Jersey Incentives
• Tax exemption for increase in value
attributable to renewable energy
systems
• Assembly Bill A2070 – The green
building tax credit
39
More to come
• Renewable energy 401 (k) Tax Credit
• American Recovery and Investment Act
enacted in February 2009 funding for
research
40
Potential Areas of Legal
Exposure From “Going Green”
Charles W. Miller III
Potential Areas of Legal
Exposure
1. Underperformance- lawsuits based on
failure to reach LEED certification
target or subsequent de-certification.
Example- Shaw Development v. Southern
Builders lawsuit
42
Potential Areas of Legal
Exposure
Shaw Development v. Southern Builders
Liability:
Project Manual language“Project is designed to comply with a
Silver Certification level according to the
U.S.G.B.C.’s LEED Rating System…”
43
Potential Areas of Legal
Exposure
Shaw Development v. Southern Builders
Damages:
$635,000 tax savings
PLUS Loss of sales and diminution in
value of building?
44
Potential Areas of Legal
Exposure
1. Underperformance- lawsuits based on
failure to reach LEED certification
target or subsequent de-certification.
2. Delayed performance
3. Advocacy-based claims vs. design
professional
45
Potential Areas of Legal
Exposure
3. Advocacy-based claims vs. design
professional
•
•
Advocate LEED certification too
strongly
Fail to advocate LEED certification
46
Potential Areas of Legal
Exposure
Fail to advocate LEED certification
Architect Canon of Ethics
6.1- “be environmentally responsible and advocate
sustainable building and site design”
6.2- “advocate the design, construction, and
operation of sustainable buildings and
communities”
47
Potential Areas of Legal
Exposure
Fail to advocate LEED certification
AIA B201 Owner-Architect Agreement
3.2.3 Architect shall…discuss with the Owner
alternative approaches to design and
construction…including the feasibility of
incorporating responsible design approaches
3.2.5.1 Architect shall consider environmentally
responsible design alternatives, such as
material choices and building orientation
48
Potential Areas of Legal
Exposure
Fail to advocate LEED certification
National Society of Professional
Engineers’ Code of Ethics
Professional Obligations, III.2.d:
“[e]ngineers are encouraged to adhere
to the principles of sustainable
development in order to protect the
environment for future generations.
49
Potential Areas of Legal
Exposure
1. Underperformance- lawsuits based on
failure to reach LEED certification
target or subsequent de-certification.
2. Delayed performance
3. Advocacy-based claims vs. design
professional
4. Greenwashing - lawsuits based on
50
deceptive marketing
51
52
AIA Contract Documents
Legal Issues in Designing
and Building Green
October 2009
Frank T. Araps
I. Project Delivery and Contract
Development - Standard AIA
Contracts for Construction
Frank T. Araps, Esq. © 2009
54
Frank T. Araps, Esq. © 2009
55
Contract Forms
Standard Form Construction Documents
– AIA Standard Forms
– ConsensusDOCS – 2007
– Engineers Joint Contract Documents Committee
(EJDC) published for 30 years by Engineers
– Associated General Contractors of America (AGC)
“Standard Form of Agreement and General
Conditions Between Owner and Contractor (Where
the Price is a Lump Sum)” No. 200
– Design-Build Institute of America (DBIA) “Standard
Form of General Conditions of Contract Between
Owner and Design-Builder” No. 535
Frank T. Araps, Esq. © 2009
56
Contract Forms
AIA Documents
– Most used standard form of documents for the
last 100 years
– Revised 1987, 1997, and 2007
Frank T. Araps, Esq. © 2009
57
Contract Forms
Frequently used AIA contract forms:
• A series – Owner Contractor.
• A101-2007 Standard Form of Agreement Between
Owner and Contractor Where the Basis of
Payment is a Stipulated Sum.
• A201-2007 General Conditions of the Contract for
Construction.
• AIA B100 Series Owner Architect Design Contracts
Integrate with A100 Series Contracts.
• A401 Subcontract Forms, and G-series Project
Administration Forms.
Frank T. Araps, Esq. © 2009
59
Conventional (A201) Design-Bid-Build
Key Attributes:
• For use when the owner’s project is divided into separate contracts
for design (architect) and construction (contractor)
• Suitable for conventional project delivery (design-bid-build)
• Owner retains Architect
• Architect and consultants prepare drawings and specifications
• Architect assists Owner in obtaining bids/proposals and then Owner
awards contract(s) for construction
• Contractor(s) and Surety(ies) obligate to owner for bid, performance
and payment bonds
• Contractor and Subcontractors build the work
Frank T. Araps, Esq. © 2009
61
Conventional (A201) Design-Bid-Build
Conventional (A201) Design-Bid-Build
Contract Relationship Diagram:
Frank T. Araps, Esq. © 2009
62
Construction Manager as Adviser (CMa)
Key Attributes:
• Owner retains an Architect and a Construction Manager
who acts as an independent adviser to the owner
• Prime contractor(s) responsible for construction, labor
and materials
• Construction Manager gives owner construction
management advice through design and construction
phases. Increases expertise in managing a project from
start to finish
Frank T. Araps, Esq. © 2009
63
Construction Manager as Adviser (CMa)
Construction Manager as Adviser (2009-CMa)
Contract Relationship Diagram:
Frank T. Araps, Esq. © 2009
64
Construction Manager as Constructor (CMc)
Key Attributes:
• Single party (Construction Manager) provides
construction management services in pre-construction
phase AND then completes construction (constructor)
• Gives Construction Manager (constructor) responsibility
and control over construction work via direct contracts
with sub-contractors
• Construction phase services paid on the basis of the cost
of work plus a fee either with (A133) or without (A134) a
Guaranteed Maximum Price
Frank T. Araps, Esq. © 2009
65
Construction Manager as Constructor (CMc)
Construction Manager as Constructor (2009-CMc)
Contract Relationship Diagram:
Frank T. Araps, Esq. © 2009
66
II.
Project Delivery and
Contract Development –
AIA’s Green References and
Documents
Frank T. Araps, Esq. © 2009
67
GREEN BUILDING v.
LEED Certified
• GREEN BUILDING is a subjective, vague,
and undefined term.
• How does an owner know if its building is,
in fact, GREEN?
• LEED certified is an objective standard
upon which to measure how green a
building is.
Frank T. Araps, Esq. © 2009
68
GREEN and LEED BUILDING Terms
AIA Doc. B101 – 2007
Standard Form Agreement
Between Owner and Architect
• Architect responsible for discussing feasibility of incorporating
environmentally responsible design approach only. Sec. 3.2.3
and 3.2.5.1.
• Owner may contract for other or additional environmentally
responsible design services from Architect as Additional
Services. Sec. 4.1.
• Implies that extensive environmentally responsible design
services and design services leading to LEED Certification
(AIA Doc. B214 – 2007) are not the same. Sec. 4.1.23 and
4.1.24.
Frank T. Araps, Esq. © 2009
69
GREEN and LEED BUILDING Terms
AIA Doc. B103 – 2007
Standard Form Agreement
Between Owner and Architect for
a Large or Complex Project
• No references to environmentally responsible design or LEED
certification
Frank T. Araps, Esq. © 2009
70
GREEN and LEED BUILDING Terms
AIA Doc. B201 – 2007
Standard Form of Architect’s Services:
Design and Construction Contract Administration
• No references to environmentally responsible design or LEED
certification
• Incorporate Supplementary Conditions (AIA Doc. A503 –
2007)
Frank T. Araps, Esq. © 2009
71
GREEN and LEED BUILDING Terms
AIA Doc. B214 – 2007
Standard Form of Architect’s Services:
LEED Certification
• Establishes duties and responsibilities of architect when
owner seeks LEED certification
• Architect’s services include: preparing LEED certification plan,
monitoring LEED certification process, providing LEED
specifications for inclusion in contract documents, etc.
• Scope document only and not intended to be used as a standalone owner/architect agreement
Frank T. Araps, Esq. © 2009
72
Principles for Building Green
• Do Not Rely on AIA Documents in
Unmodified Form
• Clearly Identify and Allocate Duties and
Responsibilities
• Coordinate GREEN Provisions in All
Contracts
Frank T. Araps, Esq. © 2009
73
Increased Exposures Surrounding
“Green” Design & Build
How will your insurance policy
respond?
Robin Campbell
74
What is insurance?
• Transfer of risk to a third party for a premium
• Liability coverage includes property damage or
bodily injury to a third party
• Professional liability provides coverage for failure
to provide professional services
• Liability coverage can include coverage for
defense costs
• First party coverage, or property coverage, pays
the policyholder for damages to their property
75
Public awareness to go “green”
• Increased pressure for developers with rising
costs and scarcity of natural resources to find
energy conserving solutions
• Grants and incentives from the government to
go “green”
• LEED certification
• Increased exposure associated with
design/build professionals promising LEED
certification
76
How does “green building” affect
property costs?
• Replacement cost valuation vs. “Green”
valuation
• Increased cost of purchasing eco-friendly
materials
• Soft costs involved with recertification of LEED
buildings
• Increased costs of construction to rebuild
“green” per local ordinance
77
How are insurance policies
responding?
• Insurance carrier specific endorsements
– “Green” coverage enhancements
– Incentives to replace damaged equipment with
“green” or eco-friendly equipment
– Carrier-specific
– Insurance Agents should ask the question to find if
coverage is available
78
Enhanced Coverage for Property
Owners
• Soft Costs coverage
– LEED Accredited Green Design Professionals
– Recertification or Certification
– Testing of Building Systems
• Increased Period of Restoration
• Excess Ordinance or Law Coverage
– Increased Cost of Construction
79
STILL, ADEQUATE INSURANCE
COVERAGE FOR “GREEN” PROPERTY
COSTS ARE TOUGH TO ESTIMATE
80
Example: Construction of “Green
House” on Long Beach Island
• 3000 Square Feet
• Conventional replacement cost value
$1,000,000
• “Green Value” estimate between $3 Million
• Blanket Builders Risk Insurance
• Additional documentation may be necessary
to prove additional costs
81
Green Exposures: Professional
Liability
An increased exposure is involved
with marketed sustainability services.
82
Specifics of Professional Liability
• Definition of Professional Services
– Does it encompass sustainability and green
services?
• Exclusions
– Professional Liability excludes guarantees &
warranties
83
Design Professionals Defined
•
•
•
•
•
•
•
•
Architects and Engineers
Land Surveyor
Landscape Architect
Construction Manager
Scientist
Technical Consultant
LEED certification consultant?
Green Building facilitators?
84
LEED certification
• Significant financial exposure for failure to
achieve a specific certification
• Risks facing firms and individuals accredited as
specialists in LEED programs can intensify
• How will your policy respond to a claim
involving the failure to design a LEED certified
building?
85
Specific Inquiries of Coverage
• Definition of professional services: do they
include LEED Certified services”
• Increased exposure with responsibility to
provide energy efficient buildings
• Policy wording should be examined
• What are the definitions?
• What are the exclusions?
86
Certificates of Insurance
• Requiring Certificates of Insurance evidencing
limits of insurance. Is it enough?
• Request specific policy endorsements and
exclusions of your subcontractors’ insurance.
• Review these documents with your insurance
agent for possible gaps in coverage.
87
Summary
• Increased Exposure with “Green” Buildings
• Some property coverage is starting to respond
• Important to examine policy wording,
professional services definition, and exclusions
• Bottom Line: This is a new area with limited
claims activity.
• Communication with your Insurance Agent is
important to avoid the mistake of “after the fact”
88
A Legislative Perspective
Assemblyman Upendra J. Chivukula,
Deputy Speaker
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