Source: http://www.lexology.com, August 7, 2012
By: Andrew R. Kwiatkowski and Douglas J. Feichtner, Dinsmore & Shohl LLP
If a firm states that a construction project possesses sustainable features or energy-efficient attributes relative to traditional practices, certain risk mitigation issues and practices must be addressed.
Green construction claims differ from conventional claims in three key areas: relatively new, emerging technologies or building techniques; enhanced or unique owner/developer expectations of performance; and implementation of sustainable certifications into the building process beyond a certificate of occupancy.
Voluntary green certification systems (e.g., LEED) have spurred the development of innovative building techniques and green construction materials. Green roofs, recycled building materials and energy-efficient HVAC systems may not be as tried and tested as their traditional counterparts. Furthermore, employees and subcontractors employing these innovative techniques and materials may not be as familiar with them or, even worse, may use them incorrectly.
To many, the use of emerging green building products means the building will function with improved performance—ranging from a healthier work environment for building occupants to long-term financial savings for the owner from reduced energy usage. These advantages can come at a cost because the use of green materials often requires a larger upfront capital investment. If the promise of increased savings fails to materialize, the building professional could face problems.
The success of a green building also frequently depends on variables beyond the control of a single developer, architecture firm or contractor. If a building component is installed incorrectly or underperforms, the entire building will operate inefficiently. Even if all the green building components are installed correctly and operate consistent with their design and purpose, occupants can derail the building’s performance through their own actions (and ignorance).
In the conventional construction context, buyers and occupants want a structurally safe and sound building. Sustainable construction’s success, however, can be difficult to measure. Anticipating how a green building will perform can be fraught with chance and unpredictability—a risky combination for contractors.
For example, both parties that contract with sustainable product suppliers (e.g., general or prime contractors) and parties with whom these suppliers have no contractual relationship (e.g., owners or architects) may claim they relied on the suppliers’ “superior knowledge” in developing or constructing the building. They also may argue for an elevated standard of care.
In some cases, sustainable technologies or methods do not deliver the energy-efficiency or cost-savings advertised by contracting and non-contracting parties. In other cases, sustainable products do not assist in achieving a green building certification as expected, either because the product did not translate into prospective LEED points or the local agency did not permit the product (such as a greywater system) to be built during the construction process. The result: frustrated owners pursuing legal claims such as negligent misrepresentation, breach of warranties (in tort or contract), fraud or breach of contract (through a direct contract or a claim of a third-party beneficiary theory) against contractors or sustainable product suppliers.
Due to the relatively novel nature of green building products and methods, individuals asserting these claims may argue traditional legal precedent does not apply. Moreover, the damages sought by these claimants may be atypical, such as damages for decreased property values, higher energy bills, or impaired use and enjoyment of the property. It remains to be seen whether experts will be able to isolate and measure the loss associated with a particular sustainable product’s failure or efficiency—beyond traditional economic loss—and translate that loss into recoverable damages.
Despite the relative dearth of legal precedent regarding green building litigation, contractors and materials suppliers can mitigate their risk using traditional means. Green building contracts, such as the ConsensusDOCS 310 Green Building Addendum or the American Institute of Architects’ Guide for Sustainable Projects, D503-2011, remain the best risk avoidance mechanisms. With the help of counsel to tailor these forms to individual projects, these contracts can clearly describe the rights and obligations of the parties; limit damages that can be recovered; and disclaim any responsibility for green building certifications or efficiency results that are outside the control of individual contractors. Additionally, product warranties for materials suppliers and contractors should be utilized to disclaim implied warranties and performance guarantees, as well as dictate when litigation, if initiated on the warranty, will occur.
Green contract documents not only dictate the rights and obligations of the parties, but also serve as evidence of what expectations, if any, are reasonable for non-contracting parties that may benefit (or suffer) from the labor or materials supplied. For example, if a general contractor agrees with a material supplier that all performance guarantees are disclaimed and no warranty on energy efficiency exists for a particular sustainable product, this can serve as strong evidence the owner or occupant should not have reasonably expected a guarantee. However, suppliers and contractors also must be aware that carelessly worded marketing materials and advertisements in the hands of a clever owner could be characterized as a guarantee or promise of performance.
As green techniques and technologies continue to evolve and become more fully entrenched in the construction industry, so will the legal precedent that surrounds these issues. In the meantime, utilizing risk mitigation mechanisms and building on the foundation of strong construction legal precedent is the best path to preventing or minimizing legal claims in the green building industry.
Source: Construction Executive