LEED and WELL Certifications are great branding tools. Having such a certification is a very efficient way to communicate the values of the building owners to potential employees and stakeholders that care about the environment and employee health. However, these certifications can pose some risks for Contractors, Engineers, and Architects.
Building owners may want to seek a LEED or WELL Certification for a variety of reasons. Perhaps they can build a taller building if it is LEED Certified. It may be easier to attract and retain talent if the building is LEED or WELL Certified.
Contractors, Architects, and Engineers are often excited to work on projects involving a LEED or WELL certification given notoriety it may provide for their work. However, there are certain risks that these professionals should consider:
- Who will be responsible for seeking the Certification? The contract should be clear on who has this duty. In one seminal green construction case (Southern Builders Inc. vs. Shaw Development LLC) the contract did not specify who was responsible. The general contractor filed a lien on the project and sued the developer. The developer countersued and claimed damages related to loss of tax credits. There are many players involved in ensuring certification occurs. The design must be proper, and there must be a construction waste management plan. Change orders must not reduce LEED points for example.
- How is the Standard of Care worded? For LEED certifications in particular, the Architects and Engineers may be asked to represent and warrant that the design is LEED certified. The standard of care should be carefully reviewed to ensure it does not elevate potential liability.
- Is the representation and warranty regarding Certification sufficiently limited? Contractors, Architects, and Engineers should not be expected to represent or warrant that Certification will occur. However, it may be reasonable to certify that the design is appropriate for Certification and that their team has experience in the area.
- Is there insurance coverage if Certification does not occur? It is important to ensure that Professional Insurance provides coverage if Certification is not possible due to negligence of the Contractors, Architects, and Engineers in Nebraska, Kansas, Missouri, and Iowa. Coverage may not be available if Certification does not occur but it is not due to negligence. If so, is there any burden of this risk placed on the Contractors, Architects, and Engineers in the contract?
- Does the contract specify LEED contingency plans (and how many points the Owner wants to have)? Kansas City Missouri has passed an ordinance requiring all municipal buildings over 5,000 sq feet to earn LEED Gold certification. It is likely important to plan for extra points so that if points are lost due to design changes, the Owner is not left with a continuing ordinance violation (or extensive additional project costs to add required modifications) if the planned certification does not occur.
- The parties may want to stipulate in the agreement that certain damage categories are not recoverable (such a lost rental income or resale value). However, a Contractors, Architects, or Engineers may be willing to assist with limited costs if modifications are necessary to meet the initial certification.
- Is there any risk to the Contractors, Architects, and Engineers if decertification occurs? LEED certification requires ongoing energy audits. Who has the risk if an owner loses the desired certification due to the failure of the building to perform in the energy audit? The parties may want to stipulate in the agreement that certain damage categories are not recoverable (such a lost rental income or resale value). However, a Contractors, Architects, or Engineers may be willing to assist with limited costs if modifications are necessary to meet the initial certification.
- Does the party responsible for certification have the right to retain key documents? Extensive documentation is necessary to pursue LEED certification. If there is a change in any one of the key parties, the owner, consultant, or other entity handling the certification needs to have the right to request and retain key documentation. One lawsuit over LEED certification involved the failure a general contractor to provide required documentation after its contract was terminated.
Projects involving a LEED or WELL certification are exciting, innovative, and can be a lovely compliment to the portfolio of a Contractors, Architects, or Engineer. However, there are important risks that should be considered and properly allocated between all of the parties. Call our Sioux City, Sioux Falls, or Omaha office today for assistance.
Angela Madathil is a Construction Attorney and provides legal assistance to Contractors, Architects, and Engineers in Nebraska and Kansas. This can involve contract review and negotiation, ongoing contract guidance during a project, and risk mitigation when issues arise. The Goosmann Law Firm team advises Contractors, Architects, and Engineers throughout the Midwest and has attorneys licensed in Iowa, Kansas, Minnesota, Missouri, Nebraska, South Dakota, and other states.