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)

DePaul’s Susanne Cannon and Ujjval Vyas of the Alberti Group, who spearheaded the production of the issue, note the following in their introduction:

Most would probably agree that sustainability is a truly laudable and challenging goal to set for ourselves, and fully worthy of our best efforts. As importantly, our efforts must be guided by serious engagement with the many complexities of realizing this goal. The articles included in this issue of Real Estate Issues illustrate the importance of introducing risk into the sustainability equation so that decision-makers can proactively manage it. By recognizing and managing the risks, we can achieve a positive outcome while hopefully minimizing our post-decision regrets.

This issue is designed to be a resource for professionals and stakeholders involved in the decision-making process for the delivery of sustainable buildings: real estate professionals; insurance and surety professionals; risk managers; government representatives; design professionals; contractors and project managers; pension fund managers; lenders and financial institution executives; attorneys; and consultants.

I encourage you to download a copy of the issue by clicking here and review it at your leisure. Please feel free to contact me if you have any difficulties with the .pdf or require assistance in tracking down contact information for any of the authors. Again, many thanks to Carol Scherf, the DePaul University Real Estate Center, and the Counselors of Real Estate for allowing me to upload this important work into GRELJ. A list of the authors and papers that constitute the issue are listed below for your reference.

• Shifting the Sustainability Paradigm: From Advocacy to Good Business (Ujjval K. Vyas & Susanne E. Cannon)
• Weather-Related Losses in the Built Environment: Societal Change and Climate Change (Roger Pielke, Jr.)
• Selling and Governing the Green Project: Owner Risks in Marketing, Entitlement and Project Governance (Paul D’Arelli, Esq.)
• Greening the Standard of Care: Evolving Legal Standards of Practice for the Architect in a Sustainable World (Frederick F. Butters, FAIA, Esq.)
• Trust, but Verify: Building Enclosure Commissioning in Sustainable Design (Daniel J. Lemieux, AIA)
• Expanding the Principles of Performance to Sustainable Buildings (James E. Woods, Ph.D., P.E.)
• Sustainable Buildings and the Surety (Bryan M. Seifert, Esq.)
• Legal Issues Arising Out Of Green Building Legislation (Stephen T. Del Percio, Esq.)
• Energy Performance in Residential Green Developments: A Florida Case Study (Pierce Jones, Ph.D., & Ujjval K. Vyas, Ph.D., J.D.)
• Green Building Representations and the Emerging Potential for Securities Fraud Liability (Brian D. Anderson, Esq.)
• Blinded by the (Green) Light: The Rise of Environmentalism and a New Vocabulary- Four Perspectives (Richard Shields)