Construction professionals and their insurers both have an interest in ensuring that inherent risks in building construction are managed in the best way possible, to prevent errors resulting in additional costs, delays to the project and costly contract disputes.
But what happens when the project requires cutting edge designs and new types of building materials? How can a construction professional manage the risks when using relatively untested products and methods?
We are currently seeing an increasing trend in claims arising out of “green” buildings and sustainable designs, as clients and planners are increasingly looking for ever more efficient buildings, both to construct and to operate. However, construction professionals need to ensure they find the right balance between embracing new technology and protecting themselves from unnecessary claims.
Current Building Regulations place statutory requirements on a designer and contractor to design and construct a building which is efficient in preventing excessive heat loss through the building fabric. However, the increasing demands for natural light and IT hardware can also put a greater demand on the cooling plant required in the building.
Increasingly, buildings are being constructed to achieve much more than the statutory requirements to achieve planning consent, or to attract prospective tenants where sustainability is a key business requirement.
The most recognised measure of sustainable “green” design in the UK is the BREEAM rating (Building Research Establishment Environmental Impact Assessment Methodology), in which non-residential buildings can range from a “pass” through to an “excellent” rating based on a wide range of criteria. These criteria can include energy and water use, health and wellbeing of occupants, environmental impact of construction materials and methods used, together with pollution, transport and waste issues.
When using performance specifications on such a project, contracting professionals should carefully review all variations that are agreed (such as those arising out of a value engineering exercise) to ensure they are not going to affect the agreed performance of the building. Issues can arise with express contractual warranties and guarantees and for any building project and it is imperative to avoid if possible agreeing to any such warranties or guarantees, as professional indemnity policies exclude liability solely arising out of such an express contractual requirement. For sustainable buildings this is even more important, because when using relatively new techniques and materials it can be almost impossible to be sure that a warranty or guarantee can be fulfilled.
Looking for a new job? There are dozens of new roles at CIOBJOBS now.
For a project involving a sustainable design, the construction professional may have to use some foresight when creating or agreeing to the terms of the contract or subcontract. For instance, researching and understanding the local authority requirements to understand all of the steps and timing required to obtain BREEAM certification, particularly if it forms part of the planning consent.
Contractors and professionals should make certain that they are not guaranteeing the results of certification by third parties. Consider perhaps using a disclaimer in the contract that explains there are many factors outside the direct control of the professional or contractor which may lead to a building not obtaining its certification. For instance, the BREEAM rating of a building may depend on proposed new public transport links being established, which may not happen immediately.
We are aware of a legal case in Maryland in the US where a $7.5m condominium project failed to meet its sustainable design standard. The design features were intended for the “LEED Silver” certification standard, but the contract was silent as to a formal requirement that the building become LEED Silver certified and silent as to which party was responsible for obtaining the certification. In the end, the building was not certified by the United States Green Building Council (USGBC) as LEED Silver, although that did not mean the building was not constructed to meet the appropriate standard of care.
The contractor filed a lawsuit against the owner for unpaid fees of $54,000. This eventually led to a counterclaim against the contractor by the developer for $1.3m in damages.
If the contract did not contain an express requirement that the building was to be LEED Silver certified but it was performing as intended, what kind of damages could the developer claim? The developer claimed loss of tax credits under the State’s green building incentives, as the time limit to claim that credit expired before certification could have been obtained. But the contract was silent as to who was responsible for the formal USGBC/LEED certification and also silent on any intended tax credit.
In the end, this case was confidentially settled and who was right and who was wrong was never determined by a court. This case raises questions on both sides of the Atlantic whether standard forms of contract address sustainable building construction and what damages an owner/developer can recover if a building is built to the required standard of care but does not achieve the required “green” certification. However, what we do know is that by clearly defining in the contract what sustainable measures the design professional and contractor is responsible for, this type of litigation could have been avoided.
Bob Paterson is a chartered civil engineer and loss adjuster and the UK director of Triton Adjusting, a specialist professional indemnity service provider and part of the Triton Global Group
