Transcript Making sustainability sustainable

An Introduction to
Sustainable Building: Risks
and Opportunities
BCBEC Presentation
May 25, 2006
Ujjval K. Vyas, Ph.D., Esq., LEED AP
Foran Glennon Palandech & Ponzi P.C.
Introduction
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Confluence of four factors leading to success of
sustainable building movement
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Design professionals, especially architects, involved
in activist-like support for sustainability
Economic changes and studies showing viability of
sustainability
Political changes resulting in the elimination of
sustainability as “hot button” issue
Technological changes to make sustainability viable
Ujjval K. Vyas, Ph.D., J.D.
Introduction

Economics
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Intangible goodwill advantages
Tangible higher asset valuation, higher resale value,
reduced operation and maintenance costs and
reduced exposure to energy price volatility
Benchmarking and plausible studies to show cost
benefit outcomes
Especially important for long-term real estate asset
holders: universities, schools, government buildings,
hospitals, industrial/manufacturing facilities, nonprofits, REITs, investment portfolios, etc.
Ujjval K. Vyas, Ph.D., J.D.
Introduction

Sustainability does not equal energy concerns
alone, but energy is the most important factor in
determining economic viability
 Claims about increased worker productivity and
performance in sustainable buildings are
questionable
 Claims about indoor air quality and decreased
health problems may prove plausible
Ujjval K. Vyas, Ph.D., J.D.
Introduction
 Life-cycle
cost analysis is the lynch-pin of
the sustainability question
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Energy modeling is at the core of the life-cycle
cost analysis
Design professionals who produce the models
may face increased exposure due to the large
potential damages if the performance fails
Increased marginal cost can be minimized by
seeking sustainable attributes from the outset
Ujjval K. Vyas, Ph.D., J.D.
Introduction

Political context no longer creates barriers to
sustainability
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Geo-politics and national security
“Conservative” agenda of fiscal responsibility and
decreased taxation comport with putting up more
efficient public and private buildings
“Liberal” agenda of decreasing taxation of natural
resources and minimizing human intervention through
resource harvesting comports with sustainable
building
Decreased dependence on fossil fuels common to
both sides
Ujjval K. Vyas, Ph.D., J.D.
Law and Economics
 Legal
risk and business risk are
inextricably tied together for all members
of the building industry
 New marketplace configurations often
present hidden legal or business risks
 These risks differ depending on the parties
or entities involved
Ujjval K. Vyas, Ph.D., J.D.
Owners

Sustainability/LEED advantages:
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Marketing/market differentiation
• This will last only until LEED becomes a common best
practice
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Reduced costs to maintain and operate
• This is the most important economic issue for owners
holding the asset for the long term
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Increased asset value
• Decreased risk for investment trusts or REITs to purchase
• Decreased exposure to energy-price volatility
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Decreased litigation associated with construction
Possible community or political advantages
Tax incentives; other equity or debt sources
Permitting incentives
Ujjval K. Vyas, Ph.D., J.D.
Owners
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Sustainability/LEED risks:
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Certification failure
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Statutory issues
Lending issues
Marketing or third-party representation of certification issues
Surety issues; especially latent defect exposures
Performance failure
• Contractor scope or design professional

Increased initial costs
• Certification or sustainability not always the most
economically sustainable option
Ujjval K. Vyas, Ph.D., J.D.
Owners
 Defraying
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or transferring risk
Contracts
• Make sure RFQ, RFP and subsequent contracts
make clear the certification to be obtained
• Make sure that the GC or CM, at risk or otherwise,
requires the subcontractors to provide necessary
documentation in support of certification
Ujjval K. Vyas, Ph.D., J.D.
Owners
 Defraying

or transferring risk
Experienced contractor and designer
• LEED accreditation not the most important
attribute
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Construction delivery method
• Design-build
• Design-build with owner’s representative
Ujjval K. Vyas, Ph.D., J.D.
Owners
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Should owners seek LEED certification or a
sustainable building?
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In terms of economics, the energy reduction and
management portion of the LEED certification is the
most significant and objectively ascertainable
Other attributes of LEED provide less tangible
benefits to the owner
LEED certification is most advantageous where the
intangible benefits play an important role in the overall
viability of the project
Ujjval K. Vyas, Ph.D., J.D.
Contractors
 Sustainability/LEED
advantages for
contractors:
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Market differentiation and competitive
advantages in a changing marketplace
Intangible good will
Decreased litigation
Ujjval K. Vyas, Ph.D., J.D.
Contractors
 Sustainability/LEED
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risks:
Certification failure
• Is contractor responsible for certification by
contract?
• Incomplete control over necessary documents for
certification
• Hidden performance specifications arise from
LEED letter template signatures by contractors
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Performance failures due to other contractors
Ujjval K. Vyas, Ph.D., J.D.
Contractors
 Defraying

or transferring risk
Contracts
• Ensure that the contract specifications and the
possible performance specifications in LEED
documents are either in agreement or require
additional compensation for providing performance
warranties
• Ensure that contracts downstream indemnify for
losses resulting from failure to certify or failure to
provide required documentation
Ujjval K. Vyas, Ph.D., J.D.
Contractors
 Defraying
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or transferring risk
Select subcontractors who are experienced
and familiar with LEED issues
Select alternative project delivery methods
that provide greater control over the whole
project
Pay attention to the construction experience
and financial viability of the owner to avoid
mismatched expectations, especially with
non-profits
Ujjval K. Vyas, Ph.D., J.D.
Contractors
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Should contractors develop LEED capabilities?
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Yes, if they want to be responsive to the changing
marketplace
Yes, if they want to penetrate new markets
No, if their particular niche is generally unaffected—
civil engineering works for example
Yes, if some segment of their project areas will be
affected
Maybe not, if they are already have capabilities
beyond LEED, such as performance contracting or
EPC contracting.
Ujjval K. Vyas, Ph.D., J.D.
Design Professionals
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Sustainability/LEED advantages:
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May increase role of architect/design professional in
the construction process
Intangible increase in “self worth,” especially for the
disproportionate number of architects involved in
LEED
If design professionals accept greater risk, such as
architect led design-build, LEED may be an entrée to
recapturing a greater share of control over building
construction
Possible increase in revenues for providing oversight
of LEED certification process via AIA B-214
Ujjval K. Vyas, Ph.D., J.D.
Design professionals
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Sustainability/LEED risks:
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Certification failure
• Design defects
• AIA B-214 and definition of “professional services” as leading
to possible exclusion by carrier
• Longer tail for liability since certification may not obtain until
long after project is complete
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Warranties
• Provision of hidden warranties in signing LEED letter
templates required for certification
• Warranty language vitiates E & O coverage for design
professionals
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Standard of Care
• Voluntary and involuntary increase in standard of care
Ujjval K. Vyas, Ph.D., J.D.
Design Professionals
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Defraying or transferring risk
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Consider carefully if the design professional should take on any
contractual responsibility for certification via AIA B-214 or
otherwise
Any design professional sub-consultants should indemnify for
losses associated with failure of LEED certification
Do not voluntarily increase the standard of care through hopeful
language; increased standard of care may create coverage and
defense issues
Do not sign LEED letter templates without adding language to
underlying contract which defines the signatures provided on the
letter templates as only a professional opinion and disclaim any
warranty implications
Ujjval K. Vyas, Ph.D., J.D.
Design Professionals
 Should
design professionals act as the
primary entity for acquiring LEED
certification?

Unclear
• Design professionals do not provide the kinds of
warranties of performance that the owner is
seeking; only contractors commonly provide this
guarantee
Ujjval K. Vyas, Ph.D., J.D.
Project delivery selection
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Design-build as preferred method
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The integrated process that is at the core of LEED
already mimics the design-build model of decreased
adversarial interaction in the construction process
Single point responsibility means the owner can get
the kinds of warranties desired without fear of complex
multiparty litigation
Single entity has control of the process and the
required documentation through privity chain
Insurance issues are no longer bifurcated into CGL
and E&O coverage areas
Any concerns on the part of the owner for independent
oversight can be solved by engaging an owner
representative
Ujjval K. Vyas, Ph.D., J.D.
Marketplace Changes
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Increased presence of contractors in shepherding LEED
certification and provision of LEED guidance to owners
Competition between Green Globes and USGBC may create
instability for owner decision-making
Savvy owners may expect sustainability services without a
premium from design professionals
The transformation of buildings from lowest cost and short-term to
high-performance may increase the marginalization of
architectural designers
Real state bubble may hurt or help sustainability; will have to wait
and see
Design professional firms not responding to the market demand
for sustainability will be at a serious competitive disadvantage
On the other hand, firms pursuing sustainability will have a
distinct market advantage
Ujjval K. Vyas, Ph.D., J.D.
Final thought

Sustainability, in its many guises, is here to stay
 The firms that manage this opportunity and the
attendant risks will increase their share of the
market
 Like the firms that said CAD was a fad, firms
ignoring sustainability do so at their peril
 The risks, like most of the other risks in the
building process, can be managed but require
active engagement
Ujjval K. Vyas, Ph.D., J.D.