2008 International Conference Golden Opportunities or Fool’s Gold? November 5-7, 2008 San Francisco The Changing Liability Environment Surrounding Architects & Engineers

MODERATOR: Kenneth Wittman, Senior Vice President, Dealey, Renton & Associates PANELISTS: Christopher Calnon, Vice President, A&E Product Manager, ACE USA Ira A. Chilton, NCARB, AIA, Chief Development Officer, ProjX LLC Brian Stewart, Esq., Member, Collins, Collins, Muir & Stewart LLP The Changing Liability Environment in A&E

We Are Here Today Because… There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know. Donald Rumsfeld, Poet

Overview Sustainable Design and LEED LEED and Design Professionals Sustainable Design and the Legal Environment Sustainable Design and Insurance Q&A

No Take Backs There were a number for unusual comments made by NBC commentators during the Olympics – We’ll share a couple - Like “Green Building” initiatives, once it starts rolling – there are no take backs: Paul Hamm, Gymnast: 'I owe a lot to my parents, especially my mother and father.' Boxing Analyst: 'Sure there have been injuries, and even some deaths in boxing, but none of them really that serious.' (Does anyone remember the innovation of asbestos insulation?)

“Green Building” on the Move Sustainable Design is Part and Parcel Of The Green Building Movement..... Many Think Green Building Techniques Will Be The Norm For Construction in the Near Future

What is Sustainable Design? What is the Green Building Movement? Sustainable Design - (green design, green building) is the art of designing physical objects, the built environment, and services to comply with the principles of economic ecological and enduring performance Assessment Programs - Have been developed to measure and credit sustainable buildings.

What is Sustainable Design? What is the Green Building Movement? In 1990 – British devise 1 st environmental certification method (BREEAM) …… In 1998 – borrowing from BREEAM the US through Leadership in Energy and Environmental Design (LEED) launch the Green Building Rating System …… In the Canada through the Green Building Initiative (GBI) launches Green Globes and distributes it to the US

Who are the Primary Movers advocating “Green Building” (USA) The U.S. Green Building Council (USGBC) – A NON-PROFIT MEMBERSHIP ORGANIZATION **..... Green Globes - PRIVATELY OWNED AND OPERATED and Licensed to the Green Building Initiative (GBI) for US distribution - the first green building organization to be accredited as a standards developer by the American National Standards Institute (ANSI) (** Our reference Organization today – more widely used in the US)

Sustainable Design & LEED USGBC (LEED) tends to emphasize its historical leadership and “consensus-based” process for the development of LEED standards

Sustainable Design & LEED USGBC - has three major units of service developed by their membership: A LEED Rating System developed into 6 categories of third party certification points A LEED Project Certification Process that is a independent 3 rd party verification of “a building is environmentally responsible, profitable and a healthy place to live and work.” A LEED Professional Accreditation “distinguishes building professionals with the knowledge and skills to successfully steward the LEED certification process”

LEED and Design Professionals LEED AP – credentialing program for individuals to gain through examination A LEED Accredited Professional – Is an individual who has passed the exam, therefore, possessing the knowledge and skills needed to participate in the design process Qualified Professional – There are no prerequisites for an individual to take the LEED exam ( however, building industry knowledge and familiarity with Green Building and LEED is recommended)

LEED and Design Professionals Passing the Exam –All LEED AP’s are allowed to earn a sum total of 1 point toward a Project’s LEED Certification under ID/IU- (Category 6 discussed later) Projects having a principal participant w/ LEED AP - then an additional 1 point can be gained

LEED and Design Professionals Going Forward - Design and development of a LEED AP credential maintenance program has begun (“A small leak can sink a great ship.” Benjamin Franklin) Will green roofs ever catch on in the United States like they have in Europe? Several barriers to widespread acceptance exist such as a lack of awareness regarding green roofs, potentially higher installation costs, limited quantifiable data pertaining to the benefits they provide, no technical information on how to build them, and a lack of government incentives or tax breaks. FORD MOTOR PLANT - DEERBORN MI

LEED and Design Professionals LEED Project Certification Process So how does the rating system work? 6 categories – SS; WE; EA; MR; EQ; ID Within each category ways to earn credits (several credits available in each category) Each credit has stated prerequisites, technical submissions, narrative submissions, and strategies Work is compiled of each credit a Project wants to gain

LEED and Design Professionals LEED Project Certification Process So how does the rating system work? Viable candidate Projects for LEED certification meet all prerequisites and achieve a minimum threshold point total Award Ratings: Certified 26 – 32 Points Silver 33 – 38 Points Gold 39 – 51 Points Platinum 52 – 69 Points Sustainable landscaping Uses 50% less water than conventional irrigation

Sustainable Design and Insurance And a Green Roof is only one item that can generate credit points for a Project

Sustainable Design and the Legal Environment What Is The Effect? What New Exposures? What Can Be Done To Mitigate Exposure To Liability? Tough questions with evolving answers! Sedum covers the roof of Schiphol International Airport - Amsterdam

Legal Issues and Concerns To be “Green” is hip To be “Green” is fresh To be “Green” is new To be “Green” is to leak? To be “Green” is dangerous??? Green Design: The new Washington DC Nationals Baseball Park achieved its goal to become the first major stadium in the United Stated accredited as a Leadership in Energy and Environmental Design (LEED) Structure.

Start At The Beginning Is Green Really New? What Did You Promise? What Did You Deliver? Warranty Claims in the Form of Breach of Contract? Fraud Claim in Sheep’s Clothing?

Case Study Federal Project Contract Requires LEED Cert Real Cost Of Green Value Engineering Result = Can’t Get There…… Unhappy Client = Angry Client

Current Status Angry Clients Tend To Not Pay Angry Clients Spread The Word Angry Clients Sue!

Happy Clients Pay Their Bills Refer New Business Refer New Clients Don’t Sue!

Anatomy Of A Green Suit The Project = 23 unit condo in Maryland AIA 1997 Version of A101 Contract used Construction cost = $7,500,000 Completed = 2006 Cert. of Occupancy = 336 calendar days Intent was to secure LEED Silver rating

Anatomy Of A Green Suit GC filed $54,000 mechanic’s lien in 2006 Drew $1,300,000 countersuit Counter-suit = $635,000 in lost tax credits Tax credits tied to LEED certification Other damages = non-conforming work, etc. Tax credit loss was biggest single damage

Anatomy Of A Green Suit Case settled so no precedent value One size does not fit all re: form agreements Was there property damage? Building environment 2006 vs. 2009

Green Is Here To Stay ENR Green Top 50 – 2007 = 15.3% of Gross ENR Green Top 50 – 2008 = 20.1% of Gross ENR Green Top 100 = $22.76B Gross LEED 2009 Proposed revisions = positive LEED 2009 = weighted point system* * SLIDE SOURCE = ENR MAGAZINE – McGRAW-HILL - SEPT. 22, 2008

What Does The Future Hold? Death, Taxes and Litigation Green is a New Way of Looking at Old Things Litigation Will Be Driven By Contract Language Clear Communication is Critical Beware of Impossible Delivery Deadlines Don’t Promise What Can’t Be Delivered

Everything Old Is New Again Sustainable Recyclable Reusable The Law of Green is Really Not New It’s The Contract...Stupid...Yet Again!

Claims Activity South City Hall Case –Facts: Construction of New City Hall facility “Sustainability” aspects increase cost 15% to 25% New facility used more energy than previous facility – Result: City brought claim against design professional Over $200,000 incurred defending case Significant damage to design firms reputation

Claims Activity Napa Valley Winery Case –Facts: Construction of “Green” winery All natural air circulation Use of “Green” building materials Use of “Green” interior paint –Result: Maintenance problem in tank room Decay & rot of Roofing system after 3 yrs Significant financial damage

Claims Activity Waste Water Treatment Plant Case –Facts: Use of “Fly Ash” in project concrete structure Owner selected inexperienced concrete contractor Specific detailed data required by inspector –Result: Project shut down for 45 day Damages estimated at $3,600,000

Claims Activity Commercial Building Case –Facts: Design firm agreed to design building to LEED Gold Developer advertises reduced opp. Cost & Healthier environment. Time & Budget constraints prevent Gold Certification –Result: Developer brings claims against Design Firm Alleges breach of contract Significant claims cost incurred

Claims Activity Green Roof Case –Facts: Green roof element included in design of project Architect recommends use of unfamiliar product Product not readily available –Result: Project delayed Contractors incurred additional cost “out of sequence construction” Owner bring suit against the project architect

What Do Design Firms Do To Mitigate Exposure? Maintain LEED Certified A&E’s on Staff Manage Clients Expectation (don’t over promise) Educate Clients (maintenance) Provide Several Alternatives Including Cost Implications Use Proven Technologies & Material Manage Contract Language (no warrantees or guarantees) Manage Subcontractors

Sustainable Design and Underwriting What Characteristics Identify Risk Exposure With Green Design? Qualification of Design Professional (LEED certified) Areas of Expertise in Design Team (specializing – Materials & Resources, Water Efficiency, Sustainable Sites, etc) Track Record Contractual Language (warrantee, LOL, etc.) Management of Subcontractors

For Additional Information… Websites: US Green Building Council (LEED) - Green Globes - National Assoc. of Home Builders – US Envir. Protection Agency - Building Green LLC - Greener World Media Inc. - A basic primer site –

Q & A U.S. Environmental Protection Agency (EPA), Kansas City Science and Technology Center,

Many Thanks to Kenneth Wittman Christopher Calnon Ira A. Chilton, NCARB, AIA Brian Stewart, Esq.