Since last month’s Legal Forum at Greenbuild, there have been a number of articles about the increase in “chatter” about the potential for “LEEDigation,” the phrase which my friend and colleague Chris Cheatham coined over at Green Building Law Update some time ago to describe the type of litigation arising out of a project which fails to obtain LEED certification as anticipated. However, as we draw closer to the end of the year, I thought it might be worthwhile to consider why concerns about “LEEDigation” might ultimately be more smoke than fire based on the green building legal experience here in 2010:

• First, the result of the Northland Pines decertification proceeding suggests to me that USGBC/GBCI will never decertify a building once it has achieved LEED certification. As you will recall, in Northland Pines, although it was clear that the high school had failed to satisfy certain LEED prerequisites – grounds for its LEED rating to be revoked by USGBC under LEED for New Construction Version 2.1 – USGBC nevertheless permitted the project team to retroactively amend its documentation and retain its LEED Gold rating. This is the primary reason – in my opinion – why we have yet to see any reported litigation arising out of a project’s failure to earn LEED certification; USGBC/GBCI will work with project teams through its appeals process to ensure that the desired level of LEED certification is achieved and “LEEDigation” never happens.

• Second, many of the private owners who are paying for LEED certification are heavily invested in USGBC as members and participate in LEED’s consensus-based development process; initiating “LEEDigation” would be a black eye for them individually, as well as for their reputation within USGBC itself. Far better to work through a project’s LEED issues collaboratively through the appeals process than to commence a costly and likely protracted litigation. I also thought the following comment from one of Mr. Cheatham’s recent posts at Green Building Law Update was fascinating and worth considering here in the context of “LEEDigation” in public contracting:

“LEED requirements are well established in the federal sector and military because they’ve been in writing for many years. The USACE’s standardized D/B RFP contains clear language going in about the LEED requirements. The scenario [described here] seems like a “LEEDigation” scare tactic. Government contracting officers do not randomly require LEED certification after construction has begun. In fact USACE publishes a list of each project they plan to actually certify in a fiscal year BEFORE that fiscal year has begun. Too bad such scare tactics get lots of attention. By the way, the Navy has had a policy of requiring actual LEED Silver certification of all of their MILCON project (not government validation like the Army and Air Force) for the last three fiscal years and no ‘LEEDigation’ has resulted from it. I find this scenario very unrealistic.”

• Third, and more broadly, I think that the International Green Construction Code, which includes USGBC’s Standard 189P as a compliance path, will become the de facto legislative tool at the state and local levels for green building policymaking. Gone are the halcyon days where municipalities could dole out tax credits and other financial incentives for green buildings; if they choose to address the local-level environmental impacts of buildings, they will do so through amendments to state- and local-level building codes using the IGCC, Standard 189P, or other location-specific initiatives. (We’re seeing this happen already; this fall, Rhode Island became the first state to adopt the IGCC, California has implemented CalGREEN as of January 1, 2010, and New York City’s Green Codes Task Force continues to make recommendations to amend the New York City Building Code.) This is important from a “LEEDigation” perspective because mandates requiring formal LEED certification will soon become an early 21st century legislative novelty.

• Finally, any private sector “LEEDigation” that does arise will be of a posture similar to Gidumal and the Toronto condominium suit (which we have referenced here at GRELJ but not written about): disgruntled purchasers and lessees of real estate in both residential and commercial contexts will use LEED as a sword if owners and landlords fail to properly represent their projects’ green aspirations in offering plans and leases.

Now, is it important to address and allocate the responsibilities for LEED certification in your design and construction agreements? Absolutely, for a host of reasons, but particularly if one party (i.e., the architect or the LEED consultant) has responsibility for coordinating any subsequent appeals to USGBC in order to capture the required level of certification.  However, it’s been over ten years since the LEED program’s inception and we have yet to see a reported litigation arising out of a project’s failure to earn LEED certification. (Again, note that this was not the allegation in the Shaw Development litigation which, incredibly, continues to be referenced incorrectly for this proposition in various quarters).

My question to you during the upcoming holiday break – which I hope you’ll respond to in the comments – is the following: will 2011 prove me wrong or is “LEEDigation” destined to go down as a green building red herring?

Just before the July 4 holiday, Fireman’s Fund, which launched the green building property insurance market back in 2006, released what it is calling its “next generation” of green building policy endorsements. Calling it a “significant enhancement to what’s currently available in the marketplace,” Fireman’s Fund’s Steve Bushnell also introduced a “Green Financial Incentive Coverage” policy that provides policyholders with protection from the loss of green building-related financial incentives, including tax credits and deductions, utility rebates, and loan discounts, for a period of two (2) years after the loss.

According to Mr. Bushnell, the new endorsement evinces Fireman’s Fund’s “deeper understanding of evolving green building construction and insurance issues.” David Cohen, the company’s senior director of real estate, called the policy “a powerful incentive as many new green buildings are built with these cost savings factored in. Every day, new incentives are introduced – both from the utilities and the government at the local, state and federal level – incenting property owners to build green and losses could get in the way of that.”

This latter point, of course, is one we make frequently here at GRELJ in the context of design and construction agreements and leases; the pace of regulatory activity continues to make translating legislative requirements into contract documents a major challenge. The new endorsement also appears to be – at least implicitly – an acknowledgment of the $600,000.00 in lost tax credits which the developer suffered in the Shaw Development litigation, though it is unclear whether – under the terms and conditions of the endorsement – the developer’s loss would have been covered.

In addition to the new endorsement, Fireman’s Fund simultaneously announced that it has made further refinements to its existing line of green building coverage, including:

• Broadening eligibility for post-loss green upgrades to include all real and personal property that more efficiently uses energy or water, improves human health or reduces environmental impact (such as alternative energy generating equipment and water systems or green roofs);

• Combining four of its endorsements – three commercial and one manufacturing – into a single endorsement, which also includes coverage for building commissioning;

• For certified buildings, coverage now allows the insured to attain certification at one level above the certified green building level that the insured had prior to the loss or damage (i.e. LEED Gold instead of Silver);

• Vegetated roof coverage has now been extended to vegetated swales and other vegetation that reduces the heat island effect, including vegetated walls. This coverage now applies to both certified and traditional buildings (previously it was only for certified buildings); and

• Coverage has also been expanded to include porous paving – water permeable paving that allows water to drain into the ground to help manage water flow.

Perhaps what’s most interesting about the press release is Fireman Fund’s acknowledgement that, to date, approximately 1500 commercial property insurance policyholders have purchased one of the company’s green building endorsements (though there is no information on how many claims have been asserted against those policies).  It goes without saying – as always – that you should review your policies of insurance – property, professional liability, builder’s risk, or otherwise – with heightened scrutiny in connection with your green construction project to confirm exactly what additional insurance – if any – you may need to procure.

As an increasing number of Canadian governments are considering the merits of LEED-driven legislation, Canada’s contractors are speaking out about the increased costs and associated red tape on projects that pursue third-party green building certification. A recent article in Western Canada’s Journal of Commerce reports that – in particular – LEED certification is “burdensome for some trades people,” and notes that the time and expense from identifying the amount of recycled content in certain building materials, the manufacturing proximity of those materials, their transportation details, and other facts are “adding up for contractors who barely have enough of the books to keep their crews working.”

The article starts out by hinting at the potential for trades to underbid LEED projects because they fail to understand the necessary paperwork and administrative components of the certification process. For example, according to Kitchener, Ontario-based Kirlen Construction project manager Stephen Harris, “[a] lot of trades bid the job and then don’t really have the resources to do it [the third-party certification process] properly.” Low bids, of course, can lead to change orders, impact a project’s schedule, and ultimately result in claims or even litigation.

With respect to contractor and subcontractor education about green building practices and processes, Harris also describes the importance of an integrated approach for project teams, particularly where the LEED application is targeting credits related to recycling materials and managing construction debris. “It’s not just a regular building where everyone just shows up and does their job,” he tells the Journal of Commerce.

At the same time, Canadian contractors are also concerned that the costs of third-party certification are eroding their bottom line in a business model where profit margins are already incredibly tight. For example, Ken Turner, principal of Vancouver-based wall and ceiling contractor Turner Brothers, believes that third-party certification is “too time consuming, trying to put together everything about recycled content, where the material comes from, where it was manufactured. We are the end-user. All the technical information is online. I don’t know why they are coming to us.”

Interestingly, Turner suggests that the fragmented nature of green building regulation is responsible – at least in part – for increasing contractors’ costs of doing business.

“If all buildings were going to be [LEED-certified] that would be one thing, but when only half the players are playing and we are trying to fight for information, with no extra money to administer it, it’s harder. Jobs are so cheap right now, the extra work just comes right off the bottom line. It would be a lot easier if we could just give our suppliers a list of our materials and they could provide the information.”

The Journal of Commerce article is important because it emphasizes one of the consistent themes here at GRELJ: that green building regulations – notwithstanding their decidedly non-uniform implementation – have outpaced industry’s own adoption of green building practices and corresponding knowledge base. Last summer’s Marsh report (Green Building: Assessing the Risks, Feedback from the Construction Industry, 2009) echoes this conclusion; for example, the risks arising from consultants and subcontractors with inadequate training and expertise were specifically identified as one of the top 5 green building risks during Marsh’s forums with A/E/C executives in New York City and Washington, D.C.

In any event, as the economy slowly turns around and new construction starts increase, I expect that we will see similar remarks from an increasing number of contractors on both sides of the border with respect to these perceived additional burdens. Of course, as more contractors and subs participate on green building projects, and more suppliers provide building materials to green building projects, many of the concerns raised in the piece should – in theory – diminish.

As you may know, in order to earn LEED’s MR-7 credit, projects must “[u]se a minimum of 50 percent (based on cost) of wood-based materials and products that are certified in accordance with the Forest Stewardship Council’s principles and criteria for wood building components.” In other words, wood-based products that are not certified by FSC are effectively excluded from earning this credit under LEED 2009 for New Construction, Core and Shell, Commercial Interiors, and Schools. USGBC, however, expressly disclaims on its website that the organization “does not certify, endorse or promote products, services or companies, nor do we track, list or report data related to products and their environmental qualities. LEED is a certification system that deals with the environmental performance of buildings based on overall characteristics of the project. We do not award credits based on the use of particular products but rather upon meeting the performance standards set forth in our rating systems. It us up to project teams to determine which products are most appropriate for credit achievement and program requirements.”

Nevertheless, USGBC is currently reviewing proposed amendments to MR-7 which would create a USGBC Forest Certification System Benchmark. The Benchmark would recognize certain forest certification systems, and the credit would be awarded for only wood products that “use a minimum of 50 percent (based on cost) of wood-based materials and products that are certified in accordance with a forest certification scheme that is recognized after evaluation against the USGBC Forest Certification System Benchmark for wood building components.” More than 50 forest certification regimes currently exist globally; the four major players in the North American market are FSC, the Sustainable Forestry Initiative, the Certified Family Forest, and the American Tree Farm system. It’s unclear how many in addition to FSC the Benchmark would recognize.

The leading Supreme Court case in this space which I analogize in the Article to the ongoing issues with the MR-7 credit is Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988). In Allied Tube, a manufacturer of plastic electrical conduit claimed that a rival member of the National Fire Protection Association which manufactured steel conduit had packed the organization’s annual meeting with sympathetic interests in order to vote against the plastic manufacturer’s proposal to include plastic conduit in the Association’s National Electric Code. The Supreme Court noted that “private standard-setting associations have traditionally been objects of antitrust scrutiny,” that the Code was “the most influential electrical code in the nation,” and that many governments had adopted it into state- and local-level legislation by reference. It also suggested that “members of such associations often have economic incentives to restrain competition and that the product standards set by such associations have a serious potential for anti-competitive harm.” The significant factor for the Court in finding antitrust liability against the manufacturer of electrical conduit was the adoption of the Code into legislation. Although my Article does not suggest (nor am I suggesting here) that this sort of activity is taking place within USGBC, I do think the Supreme Court’s identification of legislation driving market effect in this context is an important consideration for policymakers.

What’s also interesting when reviewing the line of case law presented in my Article is that USGBC’s Antitrust Compliance Policy states that “from an antitrust standpoint, [USGBC] will be commonly referred to as a trade association. Trade organizations are subject to antitrust scrutiny because they involve meetings of competitors, but they frequently engage in a number of legitimate, pro-competitive and lawful activities. In order to avoid allegations of illegal price signaling, there should be no communications or discussions between any USGBC members either at USGBC meetings or at any other time about (a) current or future prices, pricing plans or production plans, or (b) announcements of price changes or output changes. . . . As a general matter, each member should be extremely careful and seek legal advice before engaging in any conduct that could possibly provide evidence to support allegations of collusion.”

As it turns out, though, the antitrust issues raised in my Article are more than just legal theory. As you may know, back in October,  the Coalition for Fair Forest Certification filed a complaint with the Federal Trade Commission (FTC) alleging anti-competitive behavior on the part of FSC and USGBC. Among other things, the complaint alleges that “the preference shown for FSC-certified products by the USGBC raises concerns about the viability of fair competition with other domestic certification programs. The Coalition submits that USGBC and FSC operate in tandem to disadvantage wood products certified by SFI and other certification systems. Thus, to the extent an investigation is warranted, the [FTC's] Bureau of Competition should look closely at the conduct of USGBC and its favoring of FSC certification.” It’s unclear what the current status of the complaint is and whether FTC has initiated any sort of investigation.

My Article concludes with some recommendations for policymakers, including a suggestion that the “LEED Certifiable” concept and general trend towards flexibility in how green building legislation is implemented may be an implicit acknowledgment of these emerging antitrust issues. I also present a number of other federal cases that are similarly interesting to review in light of current green building regulatory activity.  I would also note that the bases raised in my Article are by no means the only antitrust grounds on which LEED or other third-party systems might be challenged at some point.

Finally, I do expect many of these antitrust considerations to crystalize further during the course of 2010 as USGBC begins to evaluate various forest certification systems against its Benchmark and the Coalition for Fair Forest Certification’s complaint moves forward within the FTC.

First, with respect to building performance, the report notes that “[t]here is very limited data that correlates verifiable improvements in building performance with building rating/certification system requirements. Many people view the few data sets that do exist as controversial in terms of methodologies and conclusions drawn from them.” It also observes that “[t]here are growing concerns that the implied guarantee of building energy performance emanating from building rating/certification/labeling systems may confuse or mislead policy makers and the public.” The controversial USGBC-backed New Buildings Institute study- whose conclusions continue to be cited in support of LEED building performance claims- could certainly be the partial genesis of these remarks.

In terms of green building legislation, the report also emphasizes a number of important points, noting that “[e]lected officials and policy makers at the federal, state, and local levels only rarely understand the objectives, development, intended uses, opportunities, and limitations of rating/certification programs for buildings and accreditation programs for individuals.” Moreover, the report argues that “[a]t an increasing rate, state and local governments and their code/regulatory agencies are adopting building rating / certification systems, intended as voluntary systems, to be their code or regulatory requirements, often without fully understanding their benefits, tradeoffs, and costs.” These remarks comport with the notion that many state and local governments have rushed to legislate in knee-jerk fashion, failing to analyze or review  corresponding legal implications; the AHRI v. City of Albuquerque litigation, for example, is illustrative here.

Perhaps most significantly, the report levels a heavy-handed critique at the organizations which promulgate green building rating systems, stating that “[m]any of the building rating/certification systems and individual accreditation systems appear to place the goal of generating revenue for their development organization as a goal equal to the organization’s commitment to knowledge development and advocacy around its issue,” and that such systems “appear to certify expertise in applying the program more than improving the actual building’s performance.” With respect to that expertise, the report acknowledges “a growing concern that individual accreditation programs are not based on rigorous criteria and testing that validate competence.” Note here that no single system was identified in the body of the report, though I’m curious whether these remarks will elicit any response from USGBC or other organizations.

In terms of legal risks arising out of green building projects, the “Owner Expectations and Professional Liability” section of the report acknowledges many of the types of risks which have been discussed here and elsewhere over the past year. For example, the Task Group notes that “design and contractor liability risk may rise if performance expectations are not realized in completed projects” and that rating systems and accreditation programs “are beginning to impact the professional standard of care recognized by law and the building community. Such systems and programs may cause design professionals, owners, managers, and facilities personnel to be held to higher degrees of expertise and performance.”

A shifting standard of care being fueled by green building practices is a critical issue that we have discussed frequently at GRELJ, and it’s important for design professionals to note that NIBS specifically identified it in the report. The Task Group also discusses green building insurance claims, noting that “[t]he vast majority of insurance claims involve misrepresentation, miscommunication, and misunderstood expectations between owners and design and construction professionals.” This remark reminded me of a BIM/green building panel held here in New York City nearly two years ago where a number of insurance industry professionals warned that claims- in the green building space or otherwise- always start with violated expectations.

The Task Group concludes the report with a set of recommendations to NIBS moving forward, which include encouraging the A/E/C community to “support one comprehensive, consensus-based building rating or certification or labeling program to reduce the complexities and contradictions that currently exist” and the development of various white papers that analyze the foregoing points in greater detail. As you may know, NIBS is a non-profit organization that was founded in 1974 by act of Congress; 6 of the 21 members of its Board of Directors are appointed by the President and approved by the Senate. Given NIBS’ backing and the scope of the Task Group’s conclusions and recommendations to the Board, its release of this report could mark the beginning of a serious uptick in the level of analysis being performed in this area.

You can download the report through the link below. I look forward to your thoughts and reactions in the comments.

• Report on Building Rating & Certification in the U.S. Building Community (NIBS)

The legislation does not require formal LEED certification, but owners must submit a checklist for the appropriate LEED rating system as part of the plans submittal for a new building permit. Checklists must set forth specific credits the project will pursue, briefly describe how each credit will be achieved, and (interesting to note from a legal perspective) the parties responsible for each credit. The checklist must also be signed by a LEED AP who is not an employee of the building owner at the time of submittal. Again, although certification is not required, in order to obtain a building occupancy permit from the city, at the time of occupancy permit application, project teams must submit a completed checklist indicating which credits the project met successfully, signed by a non-employee LEED AP. As we’ve discussed frequently here at GRELJ, all of these requirements could raise interesting- and novel- liability issues in the event that a project fails to receive a building permit or certificate of occupancy as originally contemplated. However, the city’s development community is calling for Baltimore’s City Council to reconsider the legislation based on perceived additional green building first costs and asking it to propose an incentive-based structure in its place.

According to Don Fry, President and CEO of the Greater Baltimore Committee, the new legislation “inadvertently contradicts the state’s ‘smart growth’ policy by making the counties more economically attractive to new growth and development and by impeding the city’s own efforts to grow and expand its tax base.” Specifically, Mr. Fry pointed to legislation in surrounding Baltimore, Howard, and Carroll counties that offer tax incentives for green projects rather than mandates. “This puts the city, which already has the highest property tax rate in the region, at a further competitive disadvantage,” Fry wrote in a recent op/ed piece. You may recall a similar situation unfolding in King County, Washington and Seattle a couple of years ago.

In addition, developers, many of whom have in recent years have been renovating historical structures in Baltimore’s urban core, are worried that the legislation will make such adaptive reuse projects cost-prohibitive. According to Michael Goodwin of Baltimore-based architects Design Collaborative, Inc., “[t]he reality is that right now, there is still an unknown premium to doing something green. . . . The premium, which is 4 or 8 to 12 percent on a green project, you can justify it if it’s a build and hold type of company, and in the boom we’ve been experiencing in the last four or six years, there haven’t been a lot of those.” From an engineering perspective, developers are also worried about the feasibility of simultaneously preserving historic building walls which contain glazing that will need to be upgraded in order to address LEED’s energy and atmosphere credits.

One other thought from Mr. Fry also rings salient in the context of green building policymaking: “[f]or any new policy such as this to succeed, two key things must happen. First the policy must be well-designed to achieve its intended outcome. Second, it must be well communicated to those impacted by it. Neither appears to be the case with Baltimore city’s new ‘green building’ measure.” Here, Mr. Fry is referring to the fact that the Baltimore-specific Green Building Standards that will serve as the “equivalent” to LEED have yet to be fully developed, and will not be released until the end of this year. Moreover, I would also note that, as drafted, Council Bill 07-0602 fails to include language providing for project teams to appeal a decision of the building department not to award a certificate of occupancy or building permit based on the required LEED checklists, nor does it include any sunset provision that allows the city to review the legislation’s impact and effect after a certain period of time.

It’s been a while since we’ve heard industry voice opposition to LEED-driven legislation, and the Baltimore mandate may suggest- particularly as stimulus dollars continue to flow to state and local governments to craft similar pieces of legislation, and economic conditions improve and boost construction starts- similar concerns could be raised once again in other parts of the country as well.

• Baltimore’s Green Building Standards Well-Intentioned But Flawed (GBC)
• Developers Worry About City’s New Law (TDR)
• Council Bill 07-062
• San Francisco Ordinance is “LEED on Acid” (GRELJ)

If you recall the comments from NAIOP President Thomas Bisacquino in the aftermath of the uproar created by the NAIOP study, Waxman-Markey may ultimately create the precise scenario that NAIOP and its constituents feared: 30 to 50 percent reductions over ASHRAE 90.1-2004 in the short-term. As you may remember, Mr. Bisacquino stated that “to mandate these targets right now, of 30 percent efficiency by 2010, is unrealistic for a lot of properties.” (Note that, even if the bill passes, it will likely not impose the first round of reductions until 2011 or 2012). In the study, NAIOP also argued in favor of increasing available incentives at the local, state, and federal levels to create more palatable payback periods for commercial owners and operators. Accordingly, it will be interesting to see if NAIOP pushes DOE to relax the Section 201 requirements if Waxman-Markey makes it through the Senate, or if this particular section of the bill generates any additional commentary from NAIOP or Mr. Bisacquino. Regardless, it’s clear that building performance- and associated liability concerns- will become increasingly critical issues moving forward if every building in the country is required to meet these new national energy efficient building codes.

• Energy and Climate Bill Would Set National Energy Codes (Worldchanging)
• American Clean Energy and Security Act (Section 201 available at Page 214)

Toronto’s mandate is interesting to consider in light of the risks that we have pointed out previously both here at GRELJ and over at gbNYC with respect to green roofs generally. For example, last fall, we noted an article in Property Week magazine that discussed insurer attitudes towards the increased installation of green roofs in the United Kingdom. Many insurers believe that green roofs are likely to become flammable and have identified schools- and their relatively easy low-rise roof access- as particularly troublesome from the perspective of potential arson. Property Week also cited a 2006 report authored by Zurich’s Stuart Blackie which stated that ““[t]his concept of construction is often sold on its environmental benefits. The issue of fire spread, combustibility and indeed fire safety are often overlooked.” Toronto also appears to have ignored some evidence that suggests those environmental benefits may have been oversold. For example, the Canadian National Research Council had previously reported to the city that the energy savings from green roofs would only occur for 3 months during the year and that any claimed water retention benefits simply did not exist. It will be instructive in the coming months to see the reactions- if any- from the property insurance market to the new legislation, or if Toronto’s development community will muster any sort of additional challenge to its implementation.

I think the Toronto mandate is important to consider in the context of other green building policies that have been enacted here in the United States quickly without sufficient analysis. The fact that the Toronto legislation was passed without any real debate- despite significant evidence that its perceived benefits might be less than suggested- suggests the same type of policymaking that here in the United States has already become problematic in litigations such as AHRI v. City of Albuquerque. If policies are implemented poorly, green building goals are not advanced when litigation ensues, either to challenge such policies or as their direct byproduct. I also think it’s clear that this type of green building legislation will continue to be enacted in municipalities of all shapes and sizes regardless of the practical implications for private real estate. Accordingly, it will remain increasingly critical that industry stakeholders monitor such activity in their localities such that they can work with counsel to formulate sufficient risk management strategies that address those emerging implications.

• Toronto Adopts Mandatory Green Roof Requirements (PR)
• Toronto Mulls Mandatory Green Roofs (Green, Inc.)
• Green Roofs a Hidden Risk? (gbNYC)

Specifically, while the new Stadium was projected to more or less play the same as the old one across the street, a number of factors that the Yankees and their design team may not have considered, underestimated, or were outside of their control all along have resulted in a drastically different performance than the club anticipated. For example, the new Stadium stands sixty feet taller and concourses on each level of seating are exposed to the building’s exterior, which may be creating a wind tunnel effect that is blowing baseballs out towards the fences. Interestingly, the Yankees and their engineers are not entirely certain about what will happen to these wind patterns once the old Stadium is razed as demolition has yet to start in earnest.

The analogy here, of course, is where policymakers, owners, or other stakeholders make legislative or project-related choices that are based on projections which do not accurately reflect actual performance once a structure is brought online; these dangers are even more acute where contract documents obligate a project team to achieve a certain level of performance or fixed reduction in operating expenses that are based on a predictive model. The reasons why a building’s performance could diverge may be complex and entirely unanticipated by stakeholders; building science is complicated and buildings themselves are complex systems for which modeling does not always reflect reality. The experience at New Yankee Stadium to date may be a rather simplistic example, but I do think it helps make the point that predicting performance and evaluating performance based on actual data are two very different ballgames.

Officials in El Dorado County (which is about halfway between Sacramento and Lake Tahoe) believe that the fee is illegal, calling it “a tax without calling it a tax.” The distinction is critical because, in California, a special purpose tax (as the county is characterizing the fee) requires approval from two thirds of voters before being enacted. Interestingly, although the Bee reports that real estate developers across the state supported the bill during the course of various legislative hearings prior to September 30, when Governor Schwarzenegger signed SB 1473 into law, El Dorado officials are suggesting that the fee is “another burden” on the struggling construction industry. In late January, the county requested that the state attorney general’s office review the fee and opine on whether it is legal- so far there does not appear to be a decision. In the interim, the county is not collecting the fee as required under SB 1473, despite warnings from counsel that it could be subject to penalties, backcharges, or even a lawsuit if its challenge is unsuccessful.

I think the county’s effort here is important to follow for a couple of reasons, both of which I’ve discussed at GRELJ previously. First, as suggested by AHRI, plaintiffs will not be deterred from attacking green building legislation or policies that increase transaction costs, particularly given the state of the economy and deteriorating construction climate. Second, if the attorney general agrees that the fee is indeed a special purpose tax, legislators will need to regroup and draft a bill that reflects the requirements of California law- likely more than six months after the governor signed the bill back in September. I think this demonstrates how- and why- poorly written policies have the potential to harm green building practices generally if not properly considered and vetted prior to enactment.  Policymakers definitely need to keep these two considerations in mind because poorly drafted legislation will, without question, be challenged here in 2009 even if it purports to address the greater good.

• El Dorado County Refuses to Collect Surcharge on Building Permits (Sacramento Bee)

The surety industry’s specific objection to the legislation as drafted is its requirement that projects post what is defined as a “performance bond” equal to 4 percent of the project’s total cost in advance of construction. If the project fails to meet certain levels of LEED certification, the bond is forfeited into a green building fund (which is administered by the same organization that evaluates compliance with the Act- also problematic as an obvious conflict of interest). This bond is, of course, not the traditional sort of construction performance bond but rather essentially a penal sum that is assessed in the event that a project fails to meet the requisite LEED rating.

Mr. McCallum makes the quite salient point that, as drafted, the performance bond requirement “does nothing to put the building in compliance. It simply serves as a funding mechanism for the bureaucracy.” More significantly, the owner or developer of the building, who will likely be responsible for posting the bond, is not necessarily the party that is ultimately responsible for achieving the LEED certification. Accordingly, the surety industry is extremely wary of insuring a risk that it cannot assess with sufficient accuracy. It follows that, if owners and developers cannot obtain the bond as required, they would likely need to post a letter of credit or find some other way of satisfying their obligations under the Act. The more likely scenario is that such owners will simply choose not to build in the District until there is more clarity with respect to these bonding requirements and which parties- if any- will be required to procure and post the bond.

Still, it is a positive development that the City Council is listening to the surety industry and attempting to address its concerns, though it is curious that we are still exactly where we were a year ago with respect to resolving these issues; given that the legislation is set to take effect in a couple of weeks, the City Council could certainly have moved a bit more quickly in terms of addressing Mr. McCallum’s original letter from over a year ago. As the Journal notes, “[t]he surety industry’s opposition is limited to the performance bonds issue. The march toward green building standards does not pose a problem.”

• Surety Groups Fear Risks in Green Building Act (WBJ)
• Understanding the Business of Green (GRELJ)
• Surety Industry Raises Red Flags Over D.C. Green Building Act (gbNYC)

• Redevelopers Beware – SF Ordinance is LEED on Acid (gbNYC)

• District Court Judge Grants Injunction (gbNYC)
• Industry Groups Launch Legal Challenge to Green Building Codes (gbNYC)