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Understanding Green Building and “LEED” Certification Speaker: Jeffrey Conner, Esq. Member of California Bar Vice Chairman, Real Property Section Host: Ernest C. Brown, Esq., PE Program Chair – CLS San Francisco, CA, USA Jeffrey S Conner, Esq. © 2007

Climate Change and the Green Building Imperative Buildings: 70% of electricity use INTRODUCTION

Federal, State, and Local Climate Change Initiatives Federal legislation: 5 climate change bills currently before the U.S. Senate California’s existing energy-efficiency initiatives: Title 24 energy-efficiency building standards 2004 Green Building Initiative California’s 2006 Global Warming Solutions Act Reduce greenhouse gas emissions to 1990 levels by 2020 (~25% reduction by 2020) U.S. Mayors Climate Protection Agreement Meet Kyoto Protocol goals (7% below 1990 levels by 2012) Signed by 75 California mayors

I. OVERVIEW – What is “Green Building?”

USGBC Defines LEED : Gives building owners and operators the tools they need to have an immediate and measurable impact on their buildings’ performance. Promotes a whole-building approach to sustainability by recognizing performance in five key areas of human and environmental health: sustainable site development, water savings, energy efficiency, materials selection, and indoor environmental quality. LEED provides a roadmap for measuring and documenting success for every building type and phase of a building lifecycle. Specific programs: New Commercial Construction and Major Renovation projects Existing Building Operations and Maintenance Commercial Interiors projects Core and Shell Development projects Homes Neighborhood Development Guidelines for Multiple Buildings and On-Campus Building Projects LEED for Schools LEED for Retail

The LEED System More than 90% of all commercial institutional projects use LEED, “Leadership in Energy and Environmental Design” as their rating and certification system As of April 2007, more than 4,500 new construction and renovation projects are using LEED (ave. size 100,000 SF) About 600 certified projects CA has largest number (72 as of 9/18/06) Rating Levels: Certified, Silver, Gold, Platinum 35,000 LEED Accredited Professionals 13,500 USGBC Annual Conference/Expo attendees – 2006* *Jerry Yudelson, Yudelson Associates

Green Projects Toyota Motor Sales, Torrance LEED Gold Colorado Court Affordable Housing, Santa Monica, LEED Gold

CityCenter Project - Las Vegas 17 million sq.ft.; $7 billion investment; Buildings designed by renowned architects; Goal: achieve LEED Silver rating for all buildings; State property tax abatement at 50% for 10 years is a catalyst; Under construction; occupancy expected 2009; May be largest LEED registered project in the world

Trends Accelerating Green Building High oil prices and new Federal Energy Policy Act Accelerating movement back into cities by GenXers Increasing number of successful green office developments Growing evidence for the business case benefits of Green buildings Sustained actions by local and state governments to promote Green buildings City regulations beginning to require Green buildings from the private sector People are learning how to build green on a budget Major push by AIA and others for 50% or more energy-efficient buildings Growing actions by institutional funders to require LEED certification Positive response of the American public to sustainability message

Limitations on Green Building Design/construction teams lack of experience and unwillingness to take risk Continued belief and/or evidence that green costs more Supply-chain inefficiencies in green materials/products Lack of evaluation to demonstrate green building benefits to owners and occupants Competing and confusing green building certification standards Oil prices going below $50 barrel No extension of Federal tax incentives Technological and design failures in green buildings (e.g., natural ventilation)

The Business Model for Green Savings in future utility costs (energy/water) Direct increase in building value (10x annual savings) Productivity enhancements for corporate clients Risk management benefits Reduce market risk: faster sales, lease up, lower vacancy; impact on lease renewal Health impacts Marketing benefits (positioning, brand, competitiveness) Public relations benefits Key employee recruitment and retention Public policy

Marketing & Public Relations Benefits Public image Government agencies Private companies Schools and universities (UC/CSU/CCC systems) The public cares what you do with its money, if you’re government Legislators care, if you’re a public university If you’re private, the public cares about stewardship Corporate environmental stewardship Many large companies issued sustainability reports last year

II. What are the Legal Issues unique to Green Building?

EXECUTIVE DEPARTMENT STATE OF CALIFORNIA EXECUTIVE DEPARTMENT STATE OF CALIFORNIA EXECUTIVE ORDER S-20-04 by the Governor of the State of California WHEREAS, the U.S. Green Building Council's Leadership in Energy and Environmental Design (LEED), the nation's leading green building rating system, promotes "high performance" building practices; energy, water and materials conservation; environmentally preferred products and practices; improvements in employee health, comfort and productivity; and reductions in facility operation costs and environmental impacts; and 2.1. Designing, constructing and operating all new and renovated state-owned facilities paid for with state funds as "LEED Silver" or higher certified buildings.

Guiding Principles for Federal Leadership in High Performance and Sustainable Buildings Flagship Federal effort to define green building minimums Signed on 24 Jan ‘06 by 19 agencies Elevated to Federal-wide mandate on 24 Jan ’07 via Presidential Executive Order 13423 “Strengthening Federal Environmental, Energy, and Transportation Management”

What is the new Executive Order? Consolidates and updates the goals, practices, and reporting requirements of 5 existing executive orders and two Memoranda of Understanding. Provides a holistic approach, via EMS, to integrating energy, environment, human health considerations into mission implementation. Clarifies roles of CEQ, OMB, FEE, Heads of Agencies, and Senior Officials. All current working groups stay in effect with current leadership until further notice – ISWG for buildings. Instructions, issued March 29 by CEQ, are mandatory to be considered conformant to EO.

"GREEN" CERTIFICATION – An IMPERFECT and EVOLVING PROTOCOL USGBC - "LEED" GBI - "Green Globes“ “ Build it Green” Energy Star ANSI-American National Standards Institute ASHRAE-The American Society of Heating, Refrigerating, and Air Conditioning Engineers USGBC Local Chapters City mandated, unique standards Public vs. Private distinction Voluntary Standards AIA, AGC, CMAA, DBIA, BOMA, etc. Commercial vs. Residential (LEED-H), 01/07 International Green Construction vs. Green business (ABAG, etc.)

RISK MANAGEMENT – THE BROADEST FORM Work with your insurance professional early in the process; Harmonize the expectations of all parties; READ, analyze, and negotiate your contracts; Perform consistent with that contract; Utilize a reasonable schedule; Discuss, communicate, and decide issues during project; Memorialize discussion, changes, claims, and decisions; Consider partnering, DRB and/or a project neutral.

RISK MANAGEMENT - CALL FOR "HELP" Design-Build CM at Risk ("see 'em at risk") Hire a Green consultant It seems more expensive; It's going to take more time; We can't add to the staff's scope of work; We don't know anybody over there (USGBC); We've never approached a job this way before. Joint venture success by association New technology, new standards, new anything – Red flags

AGENCY OR OWNER’S FUNDAMENTAL PROTOCOL 1) Decide and plan for Green early in the process, do not try and “Go Green” during a project! 2) Determine the level or goal to be achieved 3) Hire Green experienced individuals and/or hire a Green Consultant as necessary Identify each entity which is going to be responsible and their scope Allow for the fact that final certification may occur as much as one year after the project is complete! (do not execute a General Release) Have realistic expectations or market Green after certification Pay a premium price and establish your “Green credentials.”

RISK MANAGEMENT FOR OWNER’S TO CONSIDER 1) Specifically address Green certification and the certification goal; 2) specify responsibility; 3) specify who is at risk for different types of risk of a Green failure; 4) contractually obligate the design professionals and/or contractor to follow Green requirements necessary to achieve a specific level of certification; 5) Do not utilize liquidated damages provisions; 6) Offer significant bonuses; 7) Consider a Design-Build, DBOT or turnkey project delivery method; 8) Wait on the sidelines (or choose less onerous certification levels)

RISK MANAGEMENT FOR CONTRACTORS (subcontractors) 1) Understand the specific Green protocol (USGBC?), do not risk your business and reputation without education; 2) Make sure your senior Green person is appropriately educated and experienced; 3) Pursue liquid and Green savvy subcontractors; Analyze your means and methods and make sure they change from normal procedures to Green required procedures; 5) Shift and reduce your Green risks in contracts with subcontractors; 6) Work carefully with your insurance professional; 7) Form independent “Green division” entities; 8) Choose your Owner wisely (or wait for the right job);

RISK MANAGEMENT FOR CONTRACTORS (subcontractors) 9) Hire an in-house Green expert; 10) Hire an in-house Claims consultant; Do not agree to consequential damages provisions! Utilize liquidated damages provisions; Argue Cardinal change; Refocus on False Claims protocol for pubic work; Settle claims mid-project and execute General Release

RISK MANAGEMENT FOR DESIGN PROFESSIONALS Typically the party most at risk 1) Manage the Owner’s expectations! Do not get caught up in Greenwash 2) When contracts are being negotiated, assume the risk and get paid for the fact that any future design defects that prevent an Owner from Green certification can lead to litigation. What is the margin of error for a design professional? 3) Carefully consider the fact that the standard of care may be higher in a Green project than in your standard project Assume the risk and get paid for the fact that typical Green forms, letters and related contract provisions may create warranties 5) Consider the extended exposure between project completion and the certification decision by the USGBC or GBI, etc.

6) Address the contracts with design subcontractors, shift risks, and require indemnification 7) Tread lightly when preparing required Green letters, e.g. disclaimers, professional opinions and warranties Work closely with your insurance professional. Understand what may or may not adversely affect your Errors & Omissions policy 9) Choose your Owner wisely, Demand extra lead time 10) Utilize liquidated damages provisions 11) Stay within your comfort zone on core products 12) Education, certification, training, mentoring, staffing, financing, (praying) RISK MANAGEMENT FOR DESIGN PROFESSIONALS Typically the party most at risk

LIABILITY AND CONTROVERSY FOR CERTIFIERS USGBC has adjusted its contracts over time to as to clearly distance itself from any potential 3 rd party liability Critics grumble that, for example, water resources management in Northern Washington state shouldn’t be credited the same as water resource management in the deserts of Southern Arizona

III. GREEN BUILDING TRENDS Where was Green Building 20 years ago? Former San Francisco Supervisor pushed for “green building”25 years ago What will be the State of Green Building in 2027? By 2010, 10% of all new commercial construction will be sustainable, according to the McGraw-Hill 2006 SmartMarket Report. The majority of commercial projects will be “Green.”

TAX, FEES, and TIMING CONSIDERATIONS Many States offer tax benefits Many municipalities offer cost benefits There will be much more in the way of tax breaks and rebates in the future Some municipalities move Green projects to first in line for permitting

IV. VALUE OF GREEN BUILDINGS Profitable over the long term Getting easier to attract investors Prestige/leadership in industry or community Easier development approvals/permit processing Local media coverage, valuable free advertising Links company brand with environmental responsibility Improves employee health, quality of life, productivity for tenants Develops loyalty with tenants and key employees, aids recruitment

Further Information: Jeffrey Conner, Esq. Conner & Associates Chair of The State Bar of California’s Construction Law subsection (415) 357-1401 (415) 357-1402 fax [email_address]

LINKS & ACKNOWLEDGEMENT www.calbar.ca.gov www.climatechange.ca.gov www.energy.ca.gov www.ofee.gov www.usfca.edu www.usgbc.org www.greenbuildconsult.com Jerry Yudelson - Tucson, Arizona

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