Contract Documents: A Blown Opportunity for Mitigating Risk in Green Building
“.. the de facto contract language of choice”
The release yesterday by the American Institute of Architects of six new contract documents address the unique roles, risks, and opportunities encountered in Green building and create an urgency in considering how best to mitigate risk with voluntary Green standards and mandatory Green codes.
Risk mitigation is of import to all in the arena of Green building, not only builders and owners of Green buildings, but also architects, engineers, LEED® consultants, contractors, materialmen, real estate brokers, landlords, tenants, financiers and others, all who are involved with new construction or renovation of existing buildings.
Against a backdrop of local governments mandating Green building for private sector construction, state procurement laws that require LEED construction, the federal government only leasing LEED Silver space, the Army requiring construction that is ASHRAE 189.1 compliant, not to mention tenants requiring LEED certification in leased space or an owner signing a contract with a construction company guaranteeing a new building will achieve LEED certification so that it can receive tax breaks or other incentives or simply because the owner wants a show case Class A LEED Platinum certified building, or the risk of selling Green homes subject to state consumer protection statutes; potential jeopardy and liability abound.
The number one opportunity for limiting liability
While there is no single pill to swallow eliminating liability in Green building, the number one opportunity, bar none, for limiting that liability is a properly drafted contract document.
Contracts that are not drafted to take into consideration the uniqueness of Green building are a blown opportunity for mitigating risk. There are clear lines of liability for designing, building, financing, insuring, occupying and maintaining Green buildings that can be ‘contracted away’ only when the parties are first entering into agreements.
It is admittedly a long time from the Code of Hammurabi, Babylon circa 1790 B.C. which provided, “If a builder builds a house for someone, and does not construct it properly, and the house which he built falls .., then the builder shall be put to death.”
Lawsuit dismissed last month
But today millions of dollars may be at stake in a Green building dispute. Just last month, the U.S. District of Maryland dismissed a more than $6 Million law suit filed over the first certified LEED Platinum building. The Chesapeake Bay Foundation had asserted breach of contract and negligence against Weyerhaeuser arising from construction of the LEED certified Phillip Merrill Environmental Center building on the shore of the Chesapeake Bay that had “contemplated the use of recycled and environmentally friendly materials,” including certain wood columns and beams fabricated using wood waste materials. Sometime after the building was completed in 2000, it rained and some of the “exposed wood members” got wet and swelled and shrinked resulting in “cracking at the joints” giving rise to litigation commenced some 10 years later in 2010. On March 23, 2012, the court dismissed the case in favor of Weyerhaeuser holding “that Plaintiffs’ cause of action accrued no later than May 2002 and expired more than half a decade before they filed suit.”
Green building is a new and emergent field, and green building law is in its infancy. There are uncertainties. While little, if anything, can be done to stop someone from filing suit more than half a decade after the statute of limitations has run, risk can be mitigated through contract documents.
American Institute of Architects
The American Institute of Architects was founded in 1857 by a group of 13 architects to “promote the scientific and practical perfection of its members” today has more than 79,000 members and produce what have become the construction industry standard for contract documents.
Last May, the AIA released a Guide for Sustainable Projects, including Agreement Amendments and Supplementary Conditions. While not a paradigm shift equal to that wrought by Copernicus, the guide provides model language to amend or supplement contracts for Green building that has become the de facto language of choice for drafting Green building contracts. It is available as a free download at www.aia.org/sustainableprojectsguide.
AIA Introduces Sustainable Projects Contract Documents
Yesteday the AIA published six new documents that use AIA family of standard documents as a base and are intended for green building projects. The sustainable projects documents (designated with “SP”) include:
A101-2007 SP™, Standard Form of Agreement Between Owner and Contractor, for use on a Sustainable Project where the basis of payment is a Stipulated Sum
B101-2007 SP™, Standard Form of Agreement Between Owner and Architect, for use on a Sustainable Project
A201-2007 SP™, General Conditions of the Contract for Construction, for use on a Sustainable Project
C401-2007 SP™, Standard Form of Agreement Between Architect and Consultant, for use on a Sustainable Project
A401-2007 SP™, Standard Form of Agreement Between Contractor and Subcontractor, for use on a Sustainable Project
B214-2012™, Standard Form of Architect’s Services: Leed Certification
The documents will go a long way to standardizing the language of Green building. Each is available for purchase at a modest price at http://www.aia.org/contractdocs/index.htm.
Important matters not addressed
The documents are good. But while the AIA released Guide for Sustainable Projects rose to the level of a paradigm shift, these documents do not reach that, if simply because there are so many variations of requirements for Green building. The documents are a good checklist when drafting a Green building contract.
The new AIA documents do not endorse any particular sustainability certification and can be used with Energy Star, Green Globes, and LEED (although the contracts are LEEDcentric). Of note and while mentioned in the introductory language to the documents, some have suggested they may not be particularly well suited without substantial edits for either the IgCC or AHSRAE 189.1 (when either may apply as a mandatory code).
One of the matters not dealt with completely in the new documents is the Confirmation Of Agent’s Authority form required by GBCI when registering a LEED project. This form, a signed original of which is uploaded and countersigned by GBCI, authorizing the person completing the LEED Online documentation to bind a project owner (e.g., including post construction obligations of future energy and water data reporting, green power purchasing, green cleaning, and more) and further provides for indemnification. The issues raised by the GBCI form should be dealt with in an early contract phase.
Another issue with the new AIA documents is they contemplate a larger process with the parties conducting a sustainability workshop to develop a sustainable plan which while ideal is a process that simply does not happen in most LEED projects.
The new documents also do not raise the possibility that an owner will engage a LEED professional independent of the architect. Such can be desirable for a host of reasons not the least of which would be the limit an architect’s liability for Green matters; although the architect would then not be billing for those services.
We can revise your contracts
The number one opportunity, bar none, for limiting liability in Green building are properly drafted contract documents. The new AIA sustainable projects contract documents are good drafting checklists. The risk associated with Green building can be averted with good, precise and uniquely drafted contract language; but make no mistake, these are not your grandfather’s lawyer’s contracts. It is time now, today, to revise your contracts!
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