Thursday, December 3, 2009

Nation's 1st LEED - Related Public Lawsuit in Maryland a Precursor for Green Construction Litigation

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By Ed LeBard, Associate AIA | LEED AP

Nine years after being introduced by the U.S. Green Building Council (USGBC), Leadership in Energy and Environmental Design (LEED) rating systems are steadily becoming the de facto benchmark in measuring quality in construction as well as becoming a prerequisite in many cities throughout the United States. Despite all the USGBC's efforts in cultivating the meticulous LEED process, there have been reports of LEED related lawsuits regarding a building's failure to receive certification, but most of them were settled out of court before reaching the public record. However, there is one LEED related case that made it into the public's record, this time involving a developer and its general contractor. It was the first that actually made it to the courtroom.

A Chesapeake Bay resort in Crisfield, Maryland was built in 2006 and followed green / LEED specifications to achieve the developer's target goal of LEED-NC Silver certification. Near the end of the construction phase, the general contractor was owed the remaining payments and filed a mechanic's lien against the developer, Shaw Development, for the amount of $54,000. Due to the mechanic's lien, the LEED process slowed down and was off-track in regard to the construction time-frame. The construction process was delayed an additional nine-months. As a result, the additional nine months has cost the developer, Shaw Development, $635,000 in Maryland state tax credits.*

Although the case was eventually settled out of court, the lawsuit has officially set a precedent for future LEED-related cases. More attention into the Crisfield, Maryland case showed that it
was a typical issue of mechanic's lien, which occurs all the time in construction. A mechanic's lien stands for payments owed to subcontractors by the general contractor who in turn receives stipulated payments from the owner. According to the A-series of the American Institute of Architects (AIA) contract documents, subcontractors are only contracted to the general contractor (AIA-A401) while there is a separate contract between the general contractor and the owner/developer (AIA-A101). If the owner failed to pay the general contractor outstanding payments owed to the subcontractors, the general contractor has no choice but to file the lien. This usual issue disrupted what should have been a smooth LEED process.

This has caused construction lawyers around the country to warn architects, engineers and contractors not to guarantee that projects will get LEED certified. Many lawyers believe that A/E professional liability insurance will likely not cover failed guarantees. However, despite their concerns, some in the professional liability insurance industry are preparing for a growing green insurance market, like AIG's new AIGRMGreen service line-up to protect A/E firms from potential suits.

The best way to avoid any future LEED wrangling is for the project team, contractor and the owner to meet, carefully go over the responsibilities of each credit and decide actions to achieve that credit as well. Having a LEED consultant on board certainly will help because they are constantly on top of the meticulous process.

Also, the AIA recently came out with contract documents listing the Integrated Project Delivery process whereas the major team members in charge of designing and building the project are included in a single contract that is focused on the sustainable goals of the project. This angle would motivate the team members to work for their own common goal as well as the owner's goal. With all that, the project itself would have a higher chance of achieving LEED certification and save a lot of headaches.

Citations: * Mississippi Business Journal, Stephen Mcdill - April 13, 2009 * American Institute of Architects, * Business Wire (a Berkshire Hathaway Company), - Nov 25, 2008

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