Green is the New Black  

It’s fashionable. It may even be profitable. And, heaven help us, the Government has decided to help. 

The “green initiative” has many faces. Among the more visible of these have been anti-pollution acts, such as the Clean Air Act and Clean Water Act that were the core of the United States environmental policy in the late 20th Century. Now, however, the dangers of greenhouse gases and climate change have come to the forefront. That transformation has been due, at least in part, to the success of those earlier environmental efforts in reducing the load of toxins that are still dumped into the environ-ment. While the recovery of the American Bald Eagle and its removal from the endangered species list stands as a visible reminder that environmental responsibility can pay dividends, the 21st Century faces a different set of environmental challenges. 

Whether or not human activity has played a role in bringing about climate change, the world is going to man-date reduced emissions of greenhouse gas. The final shape of the rules that will mandate or encourage such reductions cannot presently be predicted, but it is sub-stantially certain that something is coming. Some laws are already in place. Even where there is no legal man-date for reducing the carbon footprint of business activi-ties, environmental responsibility is sometimes a volun-tary election. Green businesses can differentiate them-selves from their competitors: some consumers will pre-fer to buy green. Moreover, depending on the final shape taken by environmental laws, there may be an advantage in reducing a business’ carbon footprint in advance of the legal mandate. For example, coping with a "carbon tax" may require more lead time than may be available once

the laws are enacted, but businesses that start to reduce their carbon footprint now, in advance of the mandate, may find it easier to soften the impact of the tax once it actually arrives. Under Cap and Trade, a business that lowers its output now may find that it has "credits" result-ing from its small footprint. Regardless of the details, businesses are going to need to reduce their impact on the environment. 

 Real estate is an especially fertile field for "green-ing." The energy demands of the built environment are astonishing, and include heating, ventilation and air con-ditioning; illumination; and vertical transportation sys-tems. These are energy-intensive uses. The built environ-ment is also the source of much of the solid waste that urban planners, environmental engineers, and municipali-ties around the world struggle to dispose of. Standards for green real estate, however, began with new construc-tion and major renovations. Standards for greening an ex-isting building are a later addition. The US Green Building Council issued its first LEED guidelines--for New Construc-tion and Major Renovations--in 1998, with guidelines for other projects following later. LEED has established a sig-nificant lead over other "third party" certification pro-grams. 

Voluntary Greening  The market’s response to the green movement includes the emergence of companies that attest to products’ and activities’ meeting standards of environmental responsi-bility. The most prominent of these is the United States Green Building Council, whose LEED certifications have come to be commonly seen as THE brand that consumers identify with green properties. There are other providers of certification services, and some providers offer a range

of services that may be highly variable. However, LEED has a dominating market share, due in no small part to the use of LEED by the federal government.1 

This produces a kind of momentum that is hard to stop. The process of certifying a green building is not sim-ple. Having multiple, parallel certification programs multi-plies thje complexity and dilutes the experience gained from the projects that have been completed. As owners, developers and design professionals acquire more and more experience in designing projects and shepherding them through the certification process, they acquire an incentive to continue using the system in which they have experience. This momentum is transferred to the contractors, who are often required to demonstrate that they have experience with the certification system se-lected by the owners and developers. In short, while there are alternatives to LEED, they need more time to develop into robust systems that have the support of enough design professionals and contractors to make them feasible. For the present, there are few alternatives to LEED that are feasible, and even LEED has its mo-ments. 

Although the USGBC has been in operation for nearly 20 years, the LEED guidelines have not been rushed. The guidelines for New Construction were first re-leased in 1999, so the market has had some time to de-velop the resources--sometimes extensive--that are

1See, e.g.,United States General Services Administration, “Sustainable Design,” http://www.gsa.gov/portal/content/104462: “The GSA uses the U.S. Green Building Council’s (USGBC) Leadership in Energy and Environmental Design (LEED®) green build-ing certification system as a tool for evaluating and mea-suring achievements in sustainable design.”

needed to achieve certification as green. "Some" is not the same as "enough." Scant though the resources are for a LEED project, they are even scarcer for other brands. Now, a developer has two sets of decisions to make with respect to green certification. First, he must decide whether to employ LEED or a different brand; and second, if he selects LEED, he needs to determine which of the seven different programs he will seek certification under. More decisions will be needed as the process of project design goes forward. 

A similar set of choices must be made with respect to construction documents generally. A developer has to choose between custom contracts or using forms pub-lished by the American Institute of Architects or similar organizations; then it must decide which sort of project delivery system will be adopted; and whether to require the design team to write specifications in accordance with the standards of the Construction Specifications In-stitute (the so-called MASTERSPEC system) are all part of the pre-construction process that should be considered for any significant project. 

Just as a developer has to select between using AIA forms or those of a different organization, so too a devel-oper of a green project must choose between LEED or one of the competing organizations. That selection must reflect the availability of qualified personnel to implement that plan. One of the reasons why LEED has a growing market share is the relatively-greater supply of design professionals and contractors who have the requisite cre-dentials and experience. But one must still approach the design of the project with an awareness that even under LEED, the best-established program, the personnel to perform the work are not as plentiful as construction trades generally. A developer who has selected AIA forms

must then select from between a number of “Project De-livery Systems:” lump-sum contracting, cost-plus con-tracting of several kinds, construction management, and  design-build are just the broad categories of systems.  Likewise, having selected LEED as the overall program, a developer must choose among seven different LEED "pathways"--New Construction & Major Renovations, Ex-isting Buildings Operation & Maintenance, Core & Shell, Commercial Interiors, Retail, Healthcare, and Communi-ties. Each of these pathways has a multiplicity of prereq-uisites, credits and alternative pathways. This is similar to selecting, e.g., "CM At Risk" from the library of AIA forms. The exact credits selected in planning are analogous to the process that applies to drafting contract documents generally. 

The coordination process is especially daunting be-cause LEED and similar programs affect the way in which the whole project is approached. These terms belong in the General Requirements of the Contract, also known as Division I of the Specification. The process is daunting be-cause relatively few contract drafters have the technical experience to delve into the specification book and adjust the contract documents to be consistent. The parties should be aware that if this coordination is not built into the design of the project from the very start, they will have the Devil's own time trying to retrofit the green-ness into the finished design of the project. 

While the multiplicity of choices and combinations can seem bewildering, the multiple LEED programs can be used to simplify the design process. For example, se-curing a high rating for new construction sometimes re-quires that the developer know what the tenant mix is go-ing to be. For speculative projects, this is often impossible

to ascertain until the project is ready to receive the Ten-ant Improvement Work. 

LEED allows the developer to secure a high rating for the Core and Shell Work, irrespective of the tenant mix. The tenant work can be certified and rating sepa-rately, as a Commercial Interior, Retail or Health Care space. This flexibility encourages developers to certify work so far as is practicable, while reserving a final deter-mination on future work until that work is contracted-for. 

Despite the similarities between the decisions made with respect to construction generally and green construction, environmentally-responsible construction has some distinctive considerations. First and foremost, not all designers and contractors have experience in green construction. It is not unheard of for public works that mandate green-experienced contractors to receive only a single bid from a qualified contractor. This has im-pacts on feasibility and pricing. 

Second, communication is critical. Given the real-ity--general contractors can't be relied on to get the word out to the trades--success on a LEED project requires fre-quent, effective meetings to reinforce the message and shame those who behave irresponsibly. It is not enough to specify that LEED credits must be earned, because many of the credits for New Construction and related pro-grams demand certain processes during construction. 

Or Equivalent  

Some observers might think that the lack of LEED-qualified contractors might be ameliorated by allowing systems other than LEED to be used as “equivalent.” This would open up bidding to contractors who lack experi-ence in LEED but who have other experience that is deemed to be equivalent. 

The "Or Equivalent" approach is often used in bid-ding projects so that the design does not in effect pre-se-lect the manufacturer or installer. If there is only one con-tractor in a market who is qualified to implement a partic-ular brand of green construction, then specifying that brand is a selection of that one contractor, and the bid-ding may be open to attack. That one contractor may have the ability to charge a monopoly price and--more importantly--can dictate terms for performing the work. Achieving significant improvements in energy efficiency and environmental impacts may require a change in the way public contracting is handled in America. The higher qualifications demanded by LEED (and similar programs) may be inconsistent with the sealed public bidding that remains central to public contracting. The result, as in the E&A Restoration case is that there are not enough quali-fied contractors in a market to make real competitive bid-ding possible. 

Moreover, the fact that four out of five bidders in E&A were unqualified reflects another reality of construc-tion: the best contract is no substitute for vigilance. This is not an occasion to delve into how widespread are the shady practices of construction contractors--but neither should a developer fail to supervise their forces closely.  

The alternatives to LEED do offer some advantages in terms of expense,2 but they have their own problems. More contractors and designers will be familiar with and qualified under LEED than are likely to be found under any of the alternative programs. The alternatives have less recognition, and many of them are less comprehen-sive than LEED. For example, a building can receive a rat-ing under the Green Globe system merely by reducing energy consumption below a benchmark: no water con-2 See, e.g., “Green Globes certification rises as alternative to LEED,” Philadelphia Business Journals August 20, 2007 <http://www.bizjournals.com/philadelphia/stories/2007/08/20/focus5.html?page=all>

servation is required, while LEED always requires at least some attention to water consumption as well as power re-duction. 

There is a certain alignment between LEED and En-ergy Star, and Energy Star is one of the certification path-ways that can be incorporated into a LEED program. How-ever, other brands of green certification are often not equivalent. They call for their own qualifications, which may be entirely distinct from the criteria for obtaining LEED credentials. 

Managing the Risks  

The process of greening the real estate of a busi-ness depends in large part on awarding one or more con-tracts. Like all contracts and commercial activity, there are risks to be managed, and contracts should be used as a principal tool for allocating and sharing risks. At the very least, a contract should express the risks that a party takes by breaking, rather than performing, the con-tract. 

The most patent risk added by greening the project is that of failure to achieve “certification” or a desired “rating.” 3

Such failures can be ascribed to a variety of causes. Perhaps the project’s LEED consultant misconstrued the requirements for certification or rating; perhaps the con-sultant took credits that were not really justified by the design of the project; or perhaps the construction team’s failure to follow the mandate of the contract documents is what led to the downfall. Whenever there is a failure, we can expect a great deal of blame to go around; some of

3 In LEED terminology, a project may be “certified” as being LEED-compliant. This is the lowest rung in the LEED system and and in “ its achievement is a prerequisite to the project’s receipt of a Silver, Gold or Platinum “Rating.”

that blame will likely lead to a claim; and claims are of course grist for the risk management mill. 

There is another level of risk management at work with respect to green real estate, and that is the recogni-tion that something is coming. This is essentially a politi-cal risk. Curbs on greenhouse gas emissions are just around the corner, if not already in place. The exact shape that these controls will take cannot be predicted, and the debate between “cap and trade,” “carbon tax” and other paradigms will not be concluded soon. But some  policies are already in effect, and they include the New York City Greater Greener Buildings Program (“GGBP”). This program has had enormous impacts on owning and operating real estate in the City of New York. 

New York City has adopted a policy of reducing an-nual CO2-equivalent emissions by more than 22 million metric tons by 2025, a reduction of more than 40% of the City’s carbon footprint; sixty per cent of this reduction is to be found by improving the energy efficiency of New York’s buildings. Owners of affected real estate are going  to incur significant capital expenditures to meet these ob-jectives by 2025. It appears that owners may be able to mitigate this burden by getting started now. 

 Farewell to Grandfathering   

Changes in the laws governing the ownership and operation of real estate can, if enforced “in one fell swoop” impose a financial burden on landlords that is economically infeasible or politically unpalatable. In many cases, municipalities and higher government echelons have generally allowed existing stock to persist as “legal nonconforming uses” until replaced or substantially re-constructed. The colloquial term for this process, of

course, is “grandfathering.” New improvements must comply with the revised legislation, but the existing build-ing can remain until replaced. Generally speaking, small improvements, renovations and additions have been per-mitted without requiring the existing building to be “brought up to Code,” and a rule of 50% has long applied to code changes: until more than 50% of a building (or, in some settings, a floor) has been reconstructed, the re-mainder of the existing construction may remain in com-pliance with the “Old Code.” “As national and state energy laws become updated periodically, New York City's energy laws must also be updated to reflect equal or more stringent regulations. No longer exempting renova-tions affecting less than half of the building system, Local Law 85 (LL85), the second law in the Greener, Greater Buildings Plan (GGBP), now requires buildings to meet the most current energy code for any renovation or alteration project. LL85's requirement is based on a series of local energy laws, collectively called New York City Energy Conservation Code (NYCECC). NYCEEC cur-rently comprises the 2010 Energy Conservation Construction Code of New York State (ECCCNYS), Local Law 85 of 2009, Lo-cal Law 48 of 2010 and Local Law 1 of 2011.”4 

Other components of the City Plan require annual “benchmarking” of energy and water consumption by “large” buildings,5 the conduct of energy audits and "retrocommissioning,"6 and the installation of lighting up-grades and submetering.7

It should not be surprising that there are parallels between the NYC ECC and the LEED Guidelines.

4 http://www.nyc.gov/html/gbee/html/plan/ll85.shtml5 Local Law 84. New York City real estate is “concentrated:” the top 2% of the City’s buildings--those with more than 50,000 square feet of internal space--generate nearly than half of the City’s carbon footprint.6 Local Law 87.7 Local Law 88.

One part of the GGBP that may not have been thought through is the requirement that buildings be brought up to code in connection with even a minor reno-vation or alteration. While exemptions are available, the fact that the GGBP even potentially applies to a project is another obstacle to be navigated before the project can proceed.

There was a time--long before 9/11 changed every-thing--when a special overlay district existed in lower Manhattan just south of the World Trade Center. Buildings in this district had to be built with pedestrian circulation spaces--like an indoor mall--at the second story level. This was a prelude to the permanent separation of pedestrian and vehicle traffic. Vehicles would operate at the existing street level and pedestrians would circulate in the new spaces. This district would be the pioneer in Manhattan’s leap into the 21st Century. It didn’t happen. 

The numbers of compliant buildings could be counted with the fingers of one hand. Instead, the build-ing stock in the district aged rather than take on the bur-den of constructing interior space that would never pro-duce revenue. One important difference between the failed overlay district and the GGBP lies in the benefits that GGBP is expected to bring to owners: green buildings cost less to operate, especially as the expense of energy, water and carbon emissions continues to rise, while the special overlay district, with the second-story pedestrian circulation facilities it mandated, was a pure burden. 

Make the Tenants Pay  

The GGBP is targeted at the largest 2% of the build-ings in the City--those with more than 50,000 square feet of space. The vast majority of this space is income-pro-ducing under leases of building space to tenants. Compli-

ance with the NYCECC will produce expenses that must be borne, in the first instance, by landlords. Whether the landlords can recover these expenses from the tenants, and how that can be accomplished, will depend on many factors. 

Some expenses will represent operating expenses. The most obvious example of an operating expense that can have an impact on energy consumption is the peri-odic replacement of light bulbs.  Under the typical New York City commercial lease, increased operating costs will be recouped through rent “escalators.” Some rent escala-tion clauses are based on metrics (such as the prevailing rate of porters’ wages) that might not reflect the ex-penses incurred to comply with the Code. However, aug-mented operating expenses are at least addressed (or consciously omitted from) the leases. In the absence of a pass-through clause, the rent fixed in the lease will not be subject to adjustment. 

In cases where the expenses are capital in nature, recoupment may be more complicated. Capital expendi-tures are not operating expenses that can result in addi-tional rent pursuant to an escalation clause; on the con-trary, they produce reduced operating expenses that may be passed through to tenants under the rent “escalation” clause, or reaped directly by the tenant through reduced utility bills. This produces a disconnect between the bene-fits of the project and its burdens: owners pay for the Work and tenants reap the cost savings. 

Historically, commercial leases have not always considered capital expenditures when providing for rent escalation. In theory, landlords paid for Work that could improve their bottom line, and they did not pay for Work that was not to their benefit. At the same time, the regu-lated residential markets--governed by Rent Control and

Rent Stabilization--have always permitted rent increases to recover the cost of “major capital improvements.” Im-porting the idea of rent escalation that reflects capital ex-penditures into commercial leasing is not always easy. For one thing, it is open to negotiation. 

New York City real estate lawyers are infamous for their ability to prolong lease negotiations. In a remarkable exercise in social responsibility, the New York City real es-tate industry has developed a model clause for address-ing the brave new world of energy efficiency and its im-pact on commercial leases.  

The Future of Sustainability?  

The New York City Mayor's Office of Long-Term Planning and Sustainability has developed model lease language that addresses sharing the costs and benefits of energy efficiency projects by providing for a pass-through structure based on predicted energy savings and ex-penses. The problem of underperforming projects is ad-dressed through a "performance buffer," by setting an-nual payments at 80 percent and extending the payback period by 25 percent. 

The parties are of course free to negotiate their own path through the thickets of competing concerns. They can slow down the payments to a greater extent, or accelerate them depending on their objectives and suc-cess at the bargaining table. Indeed, anyone negotiating a long-term lease of space in New York City needs to rec-ognize that the law will require more, not fewer, steps to reduce the City’s carbon footprint. The City’s plans call for reducing the City’s annual carbon footprint by 22.1 million metric tons of CO2 by 2025; of this, nearly 60% is expected to come from buildings. It’s an ambitious plan,

one that will have a significant impact on New York City real estate for the foreseeable future. 

One of the engines that is expected to drive the whole GGBP is the mandate, in Local Law 87, for periodic “auditing” of building systems, to include implementing the recommendations of the audit for improving the building’s performance. The law calls for a ten-year cycle for repeating the audit-recommendation-implementation process. Coupling the decennial cycle for upgrades with the mandate that all renovation and alteration projects bring the building into compliance with the then-current energy efficiency code, the expectation is that buildings will upgrade to current energy standards every ten years. 

We have no experience with how the ECC will evolve. If it is reasonably stable then owners may be able to recover the capital costs over the twenty-five year pe-riod contemplated by the model “Energy Aligned Clause.” However, if the ECC evolves rapidly, it may well turn out that the installations currently being made to bring a building into compliance will need to be superseded in ten years’ time, when the next round of audits and up-grades arrives. This is precisely the kind of uncertainty that should be relieved by remedial legislation or the adoption of regulations to the extent feasible. 

In the meantime, Owners should pay close atten-tion to the kinds of projects they can undertake to im-prove their energy efficiency score without triggering the obligation to upgrade the entire building. As provided in NYCECC 101.4.4: Exception: The following need not comply with this code, provided the energy use of the building is not in-creased: 1. Storm windows installed over existing fenestration.  

2. Glass only replacements in an existing sash and frame.  3. Existing ceiling, wall or floor cavities exposed during construction provided that these cavities are filled with insulation. 4. Construction where the existing roof, wall or floor cav-ity is not exposed.   

Doing well by doing good  Quite apart from the growing mandates for environ-

mentally-responsible development, there is economic value in many of the activities that green a project. A building that capitalizes on capturing the energy of the Sun to provide a measure of heat can save money as compared to a conventional HVAC system. Those cost savings can translate into increased rent (or enhanced sales prices from condominium and cooperative offerings. Sustainable systems generally are expected to benefit owners through reduced operating and replacement costs. 

Beyond these quantifiable measures of benefit, there is a more numinous benefit in securing the certifica-tion of a project as being environmentally responsible. The LEED(R) family of certifications, developed and spon-sored by the US Green Building Council, is widely adver-tised in offerings of new and remodeled space. The LEED system provides designers and planners with a scorecard, whereby a project may qualify for status as “LEED Certi-fied” or the higher levels of Silver, Gold and Platinum. Separate criteria are established for new construction, renovations, and whole communities. Other certification providers have emerged as well. 

There are, of course, flies in the ointment. During the design of a green project, a properly-credentialled de-signer or consultant will establish a projected score or rat-ing. Like the architect’s report found in offerings of con-dominium and cooperative interests under New York’s Martin Act, a projected score depends on the project be-ing constructed in accordance with the design docu-ments. When making statements about a building that has not been constructed yet, a design professional should of course make it clear that the statements are predicated on the Work being performed in accordance with the Construction Document.  

There have been many tales shared in a variety of settings about projects that were required to achieve cer-tification or ratings that did not, in fact, receive the de-sired evaluation. There have been many lawsuits filed by purchasers of condominium and cooperative apartments, against the design professional who signed off on the “Statement of Building Condition.” 

When a building fails to achieve the desired rating after completion, there will be repercussions. It’s not un-heard of for the compensation of the “operating” or “dirty shoe partner” in a development venture to depend, in part, on achieving a LEED rating of a particular level.  There are reports that government financing for public works may require LEED certifications or ratings.8 

For example, a building may have planned to score “points” because the design documents called for strin-gent attention to waste products, including the preserva-tion of structures already present, recycling or salvaging materials from the demolition process, and other cred-itable practices. If those points are not awarded during the as-built review and rating process, the points not 8 The project in the E&A Restoration case, discussed below, required a LEED Gold rating as a precondi-tion to funding from certain State agencies.

awarded can make the all the difference in whether the project is certified or rated. 

LEED as a moving target   

Although LEED is a voluntary program, and its rat-ing criteria lack the “official” characteristic of ANSI and similar standards, the US Green Building Council has com-mitted to making LEED a consensus-based standard. The Council had prepared a revision of the standard--known as LEED2012--but delayed issuing it due to pushback from a wide range of stakeholders.9 

At the same time, LEED is having an impact on gov-ernment contracting. A recent case in New York had to grapple with a bid package issued by a local government that required bidders to show that they had recent expe-rience in successful completion of several LEED-certified projects. In E&A Restoration v. Town of North Hempstead, 2011 NY Slip Op. 30252(U), a bidder was disqualified be-cause it lacked the experience and staffing required by the invitation to bid: The Town will not accept bids from, nor award a contract to, any-one who cannot prove to the satisfaction of the Town Board that he has sufficient experience in this type of construction and finan-cially able and organized to successfully carry out the work cov-ered by the Plans and Specifications in the required completion time. Special qualification requirements are contained in the Con-tract Documents. The technical requirements outlined in the Project bid documents required that a responsive contractor demon-strate, among other things: 

9 See http://archrecord.construction.com/news/2012/07/120720-Tumult-Grows-Over-LEED-Rating-System-Update.asp

(a) Sufficient experience in the completion of five projects similar in nature, size and extent to this Project, and familiarity with the special requirements indicated in the Bid documents. (b) The experience and expertise required to perform the work so as to achieve the desired LEED rating; and (c) An experienced LEED accredited professional be engaged to coordinate the LEED requirements of the Project. 

The petitioner did not have the experience called for by the bid documents. It did not have a LEED-creden-tialled employee on staff, and there was no indication of how the petitioner intended to comply with the limitations on personnel and organizations that may “sign off” on a LEED rating.  Notably, the LEED rules have a sliding scale that determines who may be selected as the “certification authority” for the certification and/or rating of the project. A project of this magnitude calls for an independent com-missioning authority, but the petitioner did not demon-strate that it was even aware of this rule. 

Contractors are used to certification rules under which the contractor certifies that the Work is in substan-tial accordance with the construction documents. The ar-chitect serves to check on the completeness and propri-ety of the work--usually as a precondition to payments--and the governmental authorities may conduct some crit-ical or final inspections of their own. However, the special nature of LEED certifications means that the architect or engineer cannot be presumed to have the special knowl-edge needed to evaluate and score the as-built condition of the property. 

There is also a conflict of interest that is inherent in having the LEED certifications issued by a contractor, construction manager, architect or engineer of record. The LEED rules allow small projects to be signed-off by the contractor, but as the size of the project increases,

the authority to issue the certifications is progressively-restricted to personnel with increasing amounts of train-ing, education, experience and independence. 

As it turned out, the disappointed bidder did not even remotely satisfy the qualifications required by the bid package. And the court made it clear that it was not going to second-guess the decision of the Town to require a LEED platinum rating for the project. 

One attack that doesn’t appear from the record to have been raised by the disappointed bidder is whether or not the qualifications demanded were in fact consis-tent with the mandatory public bidding laws of New York. A bid package that demands restrictions and qualifica-tions may be attacked on the ground that only a very few contractors--perhaps only one--can meet the technical re-quirements of the bid package. When this problem is rec-ognized, some municipalities permit the bidders to pro-pose alternate means to satisfy the requirements.10 

In E&A Restoration, only one bidder demonstrated that it had the means to fulfill the technical requirements to bid. On its facts, it does not seem likely that this attack would have succeeded in E&A Restoration. The Town held a pre-bid conference, which the disappointed bidder at-tended. The record does not indicate that the disap-pointed bidder objected to the mandated qualifications and experience. It did not suggest that the LEED mandate was inconsistent with the legal policy of free competitive bidding. The Town also held post-bid meetings with the three lowest bidders, inviting them to submit additional materials to establish that they had the knowledge and experience to bring the project in successfully. None of

10 See, e.g., League of Minnesota Cities, “Competitive Bidding Requirements in Cities” (May 2012)

www.lmc.org/media/document/1/competitivebidding.pdf

the three lowest bidders was able to establish any level of competence with respect to LEED projects. 

As a result, the Town determined that the three lowest bids were “non-responsive.” It held further post-bid meetings with the fourth and fifth lowest bidders. It determined that the fourth lowest bidder did meet all of the criteria set forth in the Invitation to Bid, and awarded the contract accordingly. The disappointed bidder filed suit to set aside the contract award. To prevail, he had to show that the Town’s determination that his bid was “non-responsive” was arbitrary, capricious, or lacked a substantial basis in fact. He did not succeed and the con-tract award was upheld. It should not be overlooked that the Town made extra efforts to give the “low” bidders ev-ery opportunity to demonstrate their ability to fulfill the contract. The Town ended up on the receiving end of a lawsuit anyway. 

Weighing the Risks  

Construction is already a risk-laden adventure. Get-ting work done correctly, on time, on budget, without leaving a wake of broken property and bodies is not an automatic process. Construction, like aviation, is an op-portunity for things to go wrong, in the worst possible way and at the worst possible moment. Greening the project--whether through LEED or another certification program--represents an additional layer of complications and risks. The litigation risk--such as arose in E&A Restoration--is but the tip of the iceberg. 

The costs of LEED compliance are often underesti-mated. An early LEED project in Ohio was awarded on the assumption that there was no substantial additional cost in securing certification for the building. The way in which

LEED compliance was specified in the contract docu-ments and priced was less than ideal:   Since it was impossible to command the bidders to read LEED guidelines prior to the bid due date, the information had to be in-cluded in the specs. The university decided to bid many LEED re-quirements as Add Alternates in the hope it could contain costs. It was quickly discovered if a contractor did not want to be responsi-ble for a LEED requirement, he simply bid a high amount on the alternate, and hoped the owner would either omit the item, or pay an outrageous sum for its inclusion. Under state rules, high alter-nate costs do not necessarily affect a base bid. Rather than con-tain costs, it forced the owner (i.e. the university) to spend more money than anticipated just to gain minimal compliance. This is not cost-containment.11

 Contract Administration and the Contract Docu-ments  

The “standard” form construction contracts--such as those published by the American Institute of Archi-tects--contain a significant number of administration tools that are not always attended-to. One of these--the “alter-nate” bid--is often misunderstood, although it can be very useful when considering whether to require certification or rating of a project. Sometimes, an owner or its design-ers have not decided, at the time that bids are solicited, on all of the details of the work. By specifying some ele-

11Len Harding,"Specifying LEED Under Public Bid Rules," The Construc-tion Specifier (July 2005) ftp://ftp.osfc.ohio.gov/LEED%20and%20Green%20Schools/Specifications/Specifiying%20LEED%20in%20public%20bidding.pdf

ments of the work as additions that the Owner may elect to have performed or omitted, an Owner can defer mak-ing a decision on certain design elements. Properly han-dled, alternate bids can help an owner make decisions in light of the price to be paid for the alternatives. Perhaps the Owner is considering the use of a vegetated roof, but is uncommitted to the expense of installing and then maintaining the plant cover. In such a case, the bidding documents could instruct the bidder to include an ordi-nary built-up roof in the “base” bid, and that the bid also specify the cost and time needed to install the vegetated roof (or other roofing systems that may earn a bonus for preventing heat wells). An alternate bid gives the Owner the option, at a stated price and subject to other terms to require performance of additional work. Contractors have several tools available to avoid undertaking the alternate, most notably by overpricing the alternate work so as to make it prohibitive. 

The antidote to that move on the contractor’s part is to structure the package for “deduct” alternates: the contractor is required to include the green roof in the base bid, with an amount to be deducted from the con-tract sum if the Owner decides to delete that work. While the two approaches can produce the same result, the Contractor has a disincentive to overprice the green roof, since under a deduct alternate, the Owner would be able to elect to omit the green roof, and obtain an unreason-ably large reduction in the price of the overall project. 

This exemplifies why it is important to include LEED or other certifications in the program from the very start. Simply taking the documents for a conventionally-de-signed project, and expecting a LEED or other consultant to graft on the green provisions as an afterthought is a bad idea. 

The quest to satisfy prerequisites and then to rack up points as needed to certify or rate the project really needs to be part of the task before Schematic Design even begins. After all, one of the most fertile sources of points lies in Site Selection. Much emphasis is laid on the sustainability of the site--something that you can’t adjust once the project reaches the point of site acquisition and schematic design. Environmental responsibility needs to be addressed as part of the Owner's program: it is truly a pre-design concern. 

 

Preparing the Contract Documents  

There are reports from the trenches that it can make a big difference where you put the green require-ments for the Work. Of course, this is true of construction documents generally If the documents are being drawn up in the “conventional” manner, there are several con-tainers for the legal terms that are concocted by the de-sign team and the lawyers. Since all of the terms of all of the documents are read together, the legal effect of a provision might not depend on whether it is in the Owner-Contractor Agreement, or in the General, Supplementary & Special Conditions of the Contract; or in the General Requirements (Division I of the Specifications) or in Divi-sions II thorough XVI (more or less), and contractors are usually required to read all of the conract documents. However,  trade contractors are notorious for ignoring all of the Specifications beyond the one division that per-tains most closely to their Work. If you put the LEED re-quirements into Division I (where they technically do be-long), trades may never read them. Many contract drafters include the LEED (or other green) terms in the Contract Conditions, or they prepare a distinctive binder

of LEED provisions (which is adopted as a Special Condi-tion of the Contract). Other drafters include detailed alerts in the Contract's General & Supplementary Condi-tions, on the theory that those documents might be read by the contractors’ lawyers. 

These problems, which are essentially problems in communication, result from another dirty little secret about construction contracts: you can provide that the terms and conditions of the Owner-Contractor Contract are incorporated by reference into the subcontracts. You can mandate that the full Project Manual and reduced drawings be furnished to every bidder. And you will still find, when push comes to shove, that the General Con-tractor did not provide complete bid packages to the trades. This is a widespread problem, not limited to LEED, but LEED amplifies the problems because of its demand that the entire team participate in the process. 

Those who write construction-related contracts sometimes think that once the contract is signed and de-livered, the policies and procedures written into the docu-ments will somehow “just happen.” This problem is not limited to green construction. The “standard” form of General Conditions published by the American Institute of Architects calls for a large number of submittals by the construction team. These include a variety of schedules, shop drawings, product samples and information, as well as miscellaneous documents, to include permits, insur-ance certificates and policies, licenses, applications for payment, notices and a wide variety of other documents. There should also be a schedule of submittals, one that identifies all the submittals that are required under the Contract Documents. Nonetheless when legal counsel re-turns to the project to try to fix problems, one of the re-

current problems we see is the lack of conrol over sub-missions and schedules. 

Experienced contractors know the importance of keeping current with submittals, but many are not con-versant with the special submittals that are required un-der the LEED program. Their compliance with controls is less than exemplary in many cases, and LEED simply mul-tiplies the problem.  

So long as green construction remains a novelty, owners and developers should pay special heed to the co-ordination between the general submittals and the LEED submittals. There is a saying in construction that trouble creeps in whenever the work of two different trades has to "join." The same can be said of contracts and their ad-ministration. The LEED program has its own special de-mands, but unless the flow of LEED information is coordi-nated with the larger flow of information about the project as a whole, bad outcomes can be expected. Key Take-Aways 

The Green Mandate is here, and it is going to in-crease in magnitude. 

Start green: don't try to engraft green construction into a project that is already under way. Green is a pre-design issue. 

Start with the small, easy projects. Replacing all of the incandescent light bulbs with compact fluorescents is a good start. It is already inevitable, so the marginal cost of CFLs is minimized. 

Highlight the LEED requirements in the contract documents to preclude later claims that the contractor did not include LEED costs in his base bid. 

Consider using "deduct alternates," rather than "add alternates" to maintain flexibility in the scope of work in light of actual costs.