Liability Is a Gray Area for Green Buildings
Source: National Real Estate Investor, January 9, 2012
Posted on: http://envfpn.advisen.com
When sustainability standards for commercial buildings were introduced in the mid-1990s, contractors were often expected to provide guarantees that the property would receive certification for the U.S. Green Building Council’s (USGBC) LEED (Leadership in Energy and Environmental Design) or Energy Star. But since professionals and owners lacked experience in meeting green standards, if a building ended up not qualifying for certification, it wasn’t always easy to see who was at fault.
Sustainable buildings are becoming more commonplace-the USGBC certified its 10,000th project in mid-2011, and is currently certifying an additional 1.6 million feet each day around the world-so both owners and contractors understand the certification process for new green construction much better than they did even just a few years ago.
It’s easier to find language that holds contractors accountable for following, say, LEED-compliant practices, without making them liable for factors beyond their control, says Dan Probst, chairman of energy and sustainability services for Jones Lang LaSalle. He also finds owners and contractors more realistic in their expectations. “Certain credits are easy to get and some are not possible or not cost-effective,” he says. “Then there are a few that are possible or probable, but not certain. So we might not be certain of the outcome, but we know exactly where the uncertainty factor is.”
However, when it comes to certain aspects of green building-like implementing innovations, selecting green products, retrofitting existing buildings and overall energy performance-uncertainty remains, and therefore liability continues to be a difficult issue, say industry experts.
A moving target
“The concepts of green design are still so new that nobody really knows what is expected of a design professional,” says Jeff Cavignac, founder of Cavignac & Associates, a San Diego-based independent commercial insurance broker that manages risk and negotiates insurance on behalf of its clients.
Negligence occurs when the standard of care is not met, or when the professional’s performance falls below what a standard architect or engineer would do. But with green design, the standard of care is a moving target, says Cavignac.
“It’s compounded by owners’ expectations,” he says. “Owners think getting a certified building is something you pay for, and in fact it’s determined by a third party [such as the USGBC determining LEED compliance] who may or may not grant that designation. So if you, as a design professional, guaranteed LEED Gold certification and you got LEED Silver, you might not have been negligent, but you’ve breached a contract and you’ve got a coverage issue.”
Cavignac says he started noticing contracts including guarantees of green designations about five years ago. Although his firm has not seen any standard of care claims involving green buildings, he admits, “It’s a big deal in the risk-management industry.”
His advice is for both owners and designers to treat green building contracts as critical, whether a design professional is working toward green standards for the first time or has a lot of experience in the achieving LEED or Energy Star standards.
“I wouldn’t guarantee or warrant anything,” says Cavignac. “Research and document all the design choices. Remember these are innovative technologies, so if the owner is dead-set on one design component and the designer is not confident that it will work, you’d better document that: ‘We’ve recommended A. You’ve selected B. We’ve agreed to select B, but here are our concerns.'”
Dan Null, vice president of sustainability services at WSP + Flack, a New York City-based international engineering firm, agrees. He says he’s seen owners veer from their goals because their budget changes or they simply decide they don’t like the look of a sustainable feature and switch to a standard one, which loses certification points. “In truth, achieving the desired rating goal is in fact the result of a partnership between the owner, the design consultants, the contractors, the constructors,” he says.
And Nall says if he received a contract saying he was to guarantee the achievement of a certain level of LEED, “I’d have to mark that contract up and say, ‘Okay, Mr. Owner, that’s fine-if you will guarantee to agree with every proposal I make with respect to what’s necessary for the achievement of this rating. If you turn down anything, guess what? My guarantee goes away.'”
Lack of a track record
Innovations create the most obvious gray area for green design, says Jeff Slivka, executive vice president at the Philadelphia office of New Day Underwriting Managers LLC. “Look at water walls and vegetative roofing systems and domed roofs,” he says. “They wouldn’t have been contemplated in the past with traditional construction. Probably in 10 to 15 years we won’t call this sustainable or green design and construction-it’ll be standard. But right now it brings design risks.”
Sure, says Slivka, errors can and do occur on standard buildings but green designs are often characterized by intricacies that didn’t come with traditional construction.
First, many green products, including HVAC equipment and electrical and plumbing fixtures, are so new they’re untested. “Sometimes they’re being applied in a different manner to produce a more efficient effect, but we just don’t have the track record to test for true effects the way we do in traditional construction,” says Slivka.
Expect the unexpected
Retrofitting an existing structure brings its own particular set of liability issues. For instance, LEED certification requires the use of at least 60 percent of recycled materials-whether concrete, steel and wood-all of which must be tested for contamination. And a traditionally built structure sometimes needs additional support to handle the load of, say, solar panels or a wind turbine on the roof, both of which increase wind load and the change of leakage.
Put simply, that puts items on a roof that wouldn’t otherwise be there says Ruben Alspector, senior vice president of the NIA Group, a Marsh & McLennan Agency LLC company, an insurance and financial service company covering in the greater New York City area. In his experience, he says, vegetative roofs, which are a green feature often added to existing buildings, tend to overbuilt to handle the load, but that’s not always the case. “We heard about a pretty spectacular roof collapsing,” he says.
And, says Slivka, sometimes adding new technology to an old building doesn’t always work out as planned. At an existing Texas hospital that attained LEED Platinum certification, for instance, a ventilation system stopped removing humidity, creating a moisture buildup on the windows and mold issues that mandated the system’s redesign and reinstallation.
Stick to the plan
The biggest problem, however, with achieving a green rating often comes after a building is completed and up-and-running. When a green building is brought online, the process of certification ends and commissioning-or monitoring a building’s systems-begins. If the building’s commissioning report shows a drop in efficiency six months after its opening, that might be an operator’s error rather than the fault of the contractors, says Alspector.
According to Nall, the latest version of LEED has a provision stating that a building’s energy performance must remain at the level for which the building was certified. However, he says, both building owners and designers have to be realistic about the assumptions made for the energy modeling effort with respect to the building’s operation.
“I have one building that’s using significantly more energy than our LEED estimate said,” says Nall. “But on the other hand, I go out there and see that what was meant to be a storage closet is stacked with about 47 servers and they’ve installed an additional air conditioning unit to handle that.”
And building owners shouldn’t expect to maintain an energy-efficiency rating if their tenants end up coming to work on Saturdays as well as during the week, or leave their computers and lights on overnight and on weekends, adds Alspector.
But even if a building’s occupants and their equipment remain as estimated, weather can change everything.
“We can use energy modeling and experience to predict what the impact of a retrofit will be with a high degree of accuracy,” says Probst. “Changes in occupancy, weather and building operating practices will have an impact that can be predicted by the model, but may cause deviations from the expected cost savings.”
Probst says he likes Energy Star’s benchmarking system because it “normalizes” energy usage numbers for buildings by taking into account weather and temperature variations. The model also tracks the number of occupants in a building on an annual basis. “A contract that makes a service provider accountable for energy reduction would have to take these kinds of things into account,” he says.
He also recommends using ESCOs-energy service companies-because they guarantee their work, install the products and continue to manage the building.
Follow the leader
Ultimately, says Nall, nobody wants to be too much of a pioneer when it comes to green building innovations. “The good and the bad about innovation is that you’re essentially talking about something people haven’t done before,” he says. “As an advocate [of sustainability] you generally tend to have an optimistic attitude toward doing new and different things-‘it’s going to be so much better than what’s been done before.’ But you always need to question what’s the worst that could happen, who could screw up.
On the other hand, Nall adds, green building industry experts often tend to talk about their field in a negative fashion, and “one of the risks of doing something new is that you might not maximize its potential.” As he discovered recently while installing a heat pump system to utilize a lake to heat a building in Georgia, “It might actually be more effective than you thought it was.”