In this final LEED-focused post (see post #1 and post #2), we consider dispute avoidance in the context of green-building construction contracts. Like all projects, disputes often arise when expectations are not met. LEED projects are no different. Parties are best served and disputes avoided when obligations and contingencies are laid out ahead of time. For example, the AIA has adopted a guide and contract language to address and avoid disputes in this specialized context. See AIA D503 (collecting the various Sustainable Project (SP) agreements including owner-architect, architect-consultant, owner-contractor, contractor-subcontractor). Note that the AIA does not endorse any particular certification and its documents can be tailored regardless of the certification system selected. Below are some key contractual considerations related to disputes on green projects through the lens of owners, contractors, and architects:
(1) Define Consequences. A mutual waiver of consequential damages provision is common in construction contracts. But for green projects, it is important to define what those consequential (and non-recoverable items) are. For example, not achieving a certain threshold of energy savings, spending more on operational costs than anticipated, missed financial or tax incentives, or disappointing improvements to employee production might fit the definition. In the event these items are intended to avoid the waiver and are recoverable, deciding ahead of time how to measure them (which could be difficult to prove) may be a prudent course as well.
(2) Limit Liability. Generally a green-building project can only be designed or built or operated with the intention of meeting sustainable goals. Other parties must perform their expected obligations and other events must fall in place as well (e.g. contractors must have access to certain materials, efficient operation & maintenance must be executed as planned, and the authorities must interpret standards and approve the design). Likewise, as noted above the costs or damages of not meeting the expected green goal can be difficult to quantify. In light of of these types of risks, contracting parties may consider include a limitation of liability with a defined maximum.
(3) Avoid Guarantees. Similarly to #2 because project participants cannot guarantee the performance of others, contractors and designers on green-building contract should make it clear that achieving the project objective depends on events outside of any one contracting party's control.
(1) Define Consequences. A mutual waiver of consequential damages provision is common in construction contracts. But for green projects, it is important to define what those consequential (and non-recoverable items) are. For example, not achieving a certain threshold of energy savings, spending more on operational costs than anticipated, missed financial or tax incentives, or disappointing improvements to employee production might fit the definition. In the event these items are intended to avoid the waiver and are recoverable, deciding ahead of time how to measure them (which could be difficult to prove) may be a prudent course as well.
(2) Limit Liability. Generally a green-building project can only be designed or built or operated with the intention of meeting sustainable goals. Other parties must perform their expected obligations and other events must fall in place as well (e.g. contractors must have access to certain materials, efficient operation & maintenance must be executed as planned, and the authorities must interpret standards and approve the design). Likewise, as noted above the costs or damages of not meeting the expected green goal can be difficult to quantify. In light of of these types of risks, contracting parties may consider include a limitation of liability with a defined maximum.
(3) Avoid Guarantees. Similarly to #2 because project participants cannot guarantee the performance of others, contractors and designers on green-building contract should make it clear that achieving the project objective depends on events outside of any one contracting party's control.
(4) Attend to Confidentiality. Confidentiality provisions must be tailored to ensure the authority-review process does not run afoul of the terms. Authorities approving sustainable projects need to have access to and the right to reproduce and display project filings. Such reproduction and disclosure may be disallowed under typical design contracts.
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The author, Katharine Kohm, is a committee member for The Dispute Resolver. Katharine practices construction law and commercial litigation in Rhode Island and Massachusetts. She is an associate at Pierce Atwood, LLP in Providence, Rhode Island. She may be contacted at 401-490-3407 or kkohm@PierceAtwood.com.
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