The Addendum also creates a new role for design professionals, contractors, or consultants: the Green Building Facilitator, responsible under the terms of the Addendum for coordinating and facilitating the process of obtaining the owner’s desired green building status or certification, identifying green building measures (both procedural and physical), potential design and construction alternatives, and other services as required by the terms of the Addendum. The Green Building Facilitator is identified explicitly in Section 4 of the Addendum and can be the architect, engineer, contractor, or other corporate entity (or individual). However, the Addendum places certain risks on the Facilitator, and parties that choose to accept this role pursuant to the Addendum should review its terms and conditions carefully.

What’s most interesting for purposes of this article, though, is that Article 8 of the Addendum is devoted exclusively to risk allocation. Article 8.2 provides that the parties- including the Green Building Facilitator- will be subject to any limitations on liability that are included in their underlying contracts. However, this provision explicitly acknowledges that the owner’s “loss of income or profit or inability to realize potential reductions in operating, maintenance, or other related costs, tax, or other similar benefits or credits, marketing opportunities and other similar opportunities or benefits, resulting from a failure to attain the [project’s green building goals as defined in the Addendum] shall be deemed consequential damages subject to any applicable waiver of consequential damages” in any underlying design or construction contract. Compare this provision to the discussion which arose out of the Shaw Development litigation, where many commentators wondered what types of damages flowing from the breach of a green building contract would be deemed consequential in nature rather than direct. It’s therefore particularly noteworthy that the Addendum (i) acknowledges the types of unique damages that may flow from the breach of a green construction contract; and (ii) actually makes an initial effort at defining them. Of course, parties are free to negotiate the terms of the Addendum, including (depending on the project’s scope) (i) the types of damages which would be included in the provision; and (ii) any waivers – mutual or otherwise – in the underlying agreement. In Shaw, as you will recall, the issue was whether the lost tax credits were consequential and therefore waived by the owner through the A201′s mutual waiver provision; under the form terms of the Addendum, they would have been explicitly categorized as consequential. Had the parties in Shaw implemented a document like the Addendum, it would have assisted them in more comprehensively assessing the green building-related risk associated with the project and allocating that risk accordingly.

The Addendum also makes it clear that no project participant other than the Green Building Facilitator will be “liable or responsible for the failure of [any procedural or physical green measures] to achieve the [project’s green building goals as defined in the Addendum],” including the project’s failure to earn any third-party certification as designated in the Addendum. However, the Addendum also makes clear that these limitations on the project team’s liability do not relieve them “from any obligation to perform or provide [procedural or physical green measures]” as required by their underlying contracts. It will be interesting to see if additional form green building contracts and/or addenda are issued in 2010, whether they take these types of risks and limitations on liability into account, and, if so, in what particular fashion.

As you may know, ConsensusDOCS was founded in 2007 and, to date, its suite of form design and construction agreements has been endorsed by 23 different A/E/C organizations. You can download a copy of the Addendum via the link below. As always, the Arent Fox Green Building & Sustainability and Construction Practice Groups are happy to assist you with any additional questions you might have about either the Addendum or working with construction contracts generally.

• 310 Green Building Addendum (ConsensusDOCS)
• New Document Defines Role in Green Building Projects (Arch. Record)

First, I think it’s important to note at the outset that in most jurisdictions- including New York- there is no statutory obligation for a party to carry professional liability insurance, though of course most owners will insist upon it where that party is rendering architectural or engineering design services. Accordingly, absent additional information, we don’t know what type of insurance Energy Ace typically procures or the scope of any discussions it had with its carrier in considering the coverage implications of announcing its guarantee. These are critical inquiries because, as you know, most professional liability insurance policies exclude coverage for claims arising out of the breach of warranty or guarantee. However, the notion that a limitation of liability provision in a contract for LEED certification services is novel is misplaced; most LEED consultants will typically limit their liability for such services to the total amount of their fee (and do not carry a corresponding professional liability policy).

Second, I also thought that the following quote from Mr. Robertson, sourced by Andrew Burr in CoStar discussing the Energy Ace guarantee’s genesis at a meeting where local stakeholders reviewed Atlanta’s pending LEED ordinance, was particularly interesting: “[o]ne of the senior architects [who attended the meeting] was saying that these mandates are putting us in a position to offer a guarantee and we can’t do that. And I’m thinking, yes we can.” For design professionals or LEED consultants who do maintain professional liability insurance, providing an explicit guarantee of ultimate certification level or other performance is indeed problematic on that basis. However, the more troubling possibility is that a guarantee in this context might also give a professional liability insurance carrier grounds to deny coverage for any other negligence claim arising out of the project but not specifically tied to the guarantee. Moreover, the concept of a guarantee is essentially representing perfection; anything less is a breach of contract, claims for which are similarly not covered by a professional liability policy (though the insurer may still defend under the policy but reserve its rights). Guarantees also elevate the professional’s standard of care beyond what is imposed by law; again, potentially triggering another another form policy exclusion that could lead the insurer to disclaim coverage. In short, absent confirmation from the carrier that coverage will remain available, it will continue to be dangerous for parties that maintain professional liability insurance to make the types of representations implicated by the Energy Ace guarantee.

Finally, putting aside insurance considerations, the question remains as to the extent a court would uphold a limitation on liability provision for LEED certification services where the economic losses sustained by the plaintiff for the LEED consultant’s negligence were disproportionate to the fee. In New York, at least, courts will review limitation of liability clauses with heightened scrutiny, particularly if they purport to reduce a party’s exposure to damages for its own negligence. If Energy Ace (or any other LEED consultant) breached a guarantee, the project failed to obtain certification, and certain financial incentives were lost or other damages resulted, a court might be inclined to strike the provision. For example, in Shaw Development, the owner’s counterclaims against Southern Builders included two separate counts for breach of contract and negligence for Southern Builders’ “fail[ure] to construct the Project in conformance with a Silver level of certification according to USGBC’s LEED system,” with both claims seeking damages for the project’s failure to qualify for $635,000 in state-level green building tax credits. Although in Shaw Development the receipt of formal LEED certification was not a prerequisite to the owner obtaining the tax credits, the Shaw facts do suggest the kinds of damages that could flow from the breach of a LEED certification guarantee in a jurisdiction where applicable legislation is tied to formal certification. A discussion of green building consequential damages is beyond the scope of this particular article, but it is important to note the possibility that they may arise and be quite significant.

• LEED Certification or Your Money Back (CoStar)