Source: http://www.lexology.com, October 14, 2015
By: Sarah E. Carson, Smith Currie & Hancock
The public infrastructure of the United States is crumbling. While state and local governments face budgetary restrictions, they are also requiring more costly repairs through increasing mandates for green building. The United States Environmental Protection Agency describes green building as the practice of creating structures that are environmentally responsible and resource efficient throughout the building’s lifecycle, from design to maintenance operations. Not surprisingly, such lofty requirements often challenge a government entity’s ability to meet these obligations due to a lack of the necessary experience to efficiently develop the desired green infrastructure. Fortunately, Public Private Partnerships (P3s) offer new financing opportunities which facilitate meeting the often competing realities of limited public resources and experience with the demand for costly green building.  This goal is achieved through the P3 model by identifying entities best situated to assume risk – whether public or private.
Assuming risk is not the same as accepting, unconditionally, all potential hazards inherent in the emerging P3 green construction market. The short history of P3 use often limits the design-build contractor from realizing its unique responsibilities for financing, operating, and maintaining the project for future decades. Risks can be mitigated through an understanding of the public entity’s expectations and proactive planning to achieve such goals.
Converting Public Difficulty to Private Profitability
The accelerant for demanding P3 green solutions generally comes from those who suffer from the crumbling infrastructure, whether business owners or the general public, who want to avoid an expensive and traditional cycle of short term solutions in favor of cost effective sustainable results through green construction. Based on the problem for which the public demands a resolution, it is then the responsibility of the local or state sponsoring agency to execute the solution to the extent the law allows. However, if a law is not already in place, state-enabling legislation must be adopted which specifies the kinds of projects which will be considered for P3 administration, how these projects will be chosen, and how the requirements for the green infrastructure will be achieved. The enabling legislation will usually create the basic structure for the P3 project, and in some instances, the legislation will require approval of each P3 green building endeavor.
Minimizing Risk through Clarification
The success of a traditional building project is measured through compliance with the owner’s requirements, specifically the physical layout and construction of the building where operational qualities are secondary. However, for P3 green infrastructure construction, a building’s operational characteristics are the main focus of the design and construction of the building.  This shift in priorities requires the design-build contractor to design according to measurable green building performance standards.
Green buildings need to be designed and performance optimized as an integrated system and not a group of independent systems, as is typical for traditional buildings. The contractor operating as a design-builder on a green construction project needs to recognize and articulate in the contract documents the complexity of design demanded and the how it will impact the project schedule and coordination of subcontractors. Accordingly, building performance is the biggest risk faced by the contractor on a green building design-build project.
Further, a design-build contractor on a P3 green infrastructure project assumes numerous risks from the selected concessionaire. Potential liability may originate from project cost overruns, liquidated damages, and inadequate performance of the completed facility. Such risks are often uninsurable which forces the P3 to manage such risks through detection and proactive steps to render them less probable or to limit the consequences of adverse results.
A major risk in P3 green construction is poorly defined performance and green criteria. To elevate this hurdle, an objective industry standard for establishing system performance criteria or certain green certification determinations must be included in the contract.  Specifically, it is important that green building performance criteria be measurable and not stated vaguely, because the public entity’s project criteria should serve not only as the basis of the design but also a tool to evaluate building performance after construction.
Designers often act as subcontractors for their work on the proposal. In P3 contracts, a public entity will generally hire a design firm knowledgeable in green construction to conduct early studies and develop a schematic level of the design for the project. From there, a design-build contractor is selected to provide the design and construction of the project. The general contractor acts as the lead entity and compensates a design professional, as either employee or consultant, for its services throughout the contract.
P3 contracts involving green construction create larger risk for the designer as well as the design-builder hiring the designer. Contracts for green infrastructure P3 construction often include a heightened standard of care for architects and engineers that can leave the designer vulnerable to the professional negligence allegations as he is accountable for recognizing and attaining the results associated with the higher standard. To minimize the risks associated with such standards of care, a detailed scope of services for which the designer is responsible must be detailed in the contract. The agreement must include defined roles and responsibilities among all parties including design, installation, and commissioning, as well as the responsibilities for third-party green certification.
Typically, the general contractor performs the construction phase of the project utilizing the designs provided by architects and engineers. This project delivery system also comes with risks, as the contractor can be assigned responsibility for achieving the required building performance or green certification. This risk is magnified when the public entity fails to clearly articulate measurable design-build performance requirements. This may include environmental permitting, which is commonly outside of a design-builder’s purview.
Achieving Expectations through Subcontracting
As most of the construction work will be subcontracted, the expectations must be achieved by the subcontractors. The contractor’s responsibility for the performance of its subcontractors is usually addressed in the construction agreement and thus the agreement is imperative to achieving success. On green projects, the ability of the contractor to achieve the project’s sustainable objectives depends on the subcontractor’s performance and the contractor’s ability to effectively manage subcontractors. The contractor must be able to communicate green project objectives and requirements to the subcontractor as well as educate them about their role in achieving these objectives. Specifically, subcontractors need to understand that sustainable construction is an ongoing process that starts with preconstruction and may not necessarily end with closeout.
Commissioned to Perfection
Building commissioning is often an obligation of the P3 design-build contractor to demonstrate to the public entity that the building and systems that comprise it operate in accordance with the owner’s project requirements including green sustainability. This is done not only through design and construction, but also through testing and inspection, training the owner’s building operating personnel, and post-occupancy monitoring and testing of building system performance during the required “life span” of the project. The objective in performing such systematic inspections is to ensure that the P3 is delivered as promised with reduced operating costs that not only reduce energy costs but also operation and maintenance costs over the life of the facility.
Operation and Maintenance
The operation and maintenance personnel selected by the design-build contractor have long term responsibility for the project, as the design and construction must be highly sensitive to the sustainability and energy efficiency of the facility through the entire life cycle of the P3 project. To ensure future sustainability of the green building objectives, specifically qualified individuals must continuously supervise the operation and maintenance unique to the P3’s green-infrastructure project including possible corrosion, site contamination, and toxic chemical releases throughout the decades-long P3 commitment.
Conclusion
The use of P3s to solve the nation’s infrastructure problems is rising. This fact, coupled with the nation’s commitment to green sustainable building processes, will produce opportunities for the construction industry. While risk is inherent to such opportunities, understanding the procedures, expectations, and long term commitment will allow knowledgeable industry professionals to profit from those opportunities.