The Basics of Green Building Contracts

Green building opportunities are engaging a lot of attention. This is a result of many factors, such as tax credits, greater regulatory assistance, and increased consumer awareness about environmental conservation. However, green building contracts aren’t as easy-to-understand as conventional building contracts.

What Makes Green Building Contracts Challenging?

For a long time, there was an absence of standard green-construction contracts. As a result, green-building contracts have often been vague, creating a lot of problems for contractors and other involved parties. Being relatively new and still coming to terms with different state-level and national regulations, maintaining uniformity in green-building contracts can be difficult. Recently, this issue has been addressed.

Green-building contracts addressing different types of green risks are now available. The construction industry is still familiarizing itself with this contractual format. Typically, green contracts try to address unique liabilities, responsibilities, and risks associated with green buildings.

We will talk about different aspects of comprehensive risk-management strategy in such contracts. Ideally, the contract should include anticipated/possible risks followed by different clauses and sub-clauses that clarify every aspect of the risks involved. According to the recently-introduced standards, a green-building, risk-management contract should address the following:

Designate responsibilities—establishing accountability is an essential component of building contracts as specific people/departments are designated different job responsibilities. The contract should clearly mention people or parties responsible for failure to achieve green certifications or tax credits. The contract must explain the extent of responsibilities (or risks) of the contractor. Standard and additional risks should be explained. The contract should mention parties responsible for collating and preparing documents for getting green ratings.

Clearly defining green terminology—this includes often-used terms like “green certification” and “sustainability”. These terms don’t have an established, universal definition. Therefore, the contract should define these terms, making them clear for all the concerned parties.

Disclaimer—usually, contractors like to include a disclaimer. This provides more assurance to all the concerned parties. Here, the contractor provides a guarantee for achieving the desired outcomes. The desired outcome can be a green-building certification or the intended energy-efficiency figures. Failure to achieve these outcomes can lead to substantial damages. The disclaimer should state whether the consequential damages will be waived or executed and under what circumstances.

Terms related to project delivery—the contractor should present clear estimates or defined dates by which the green building project will be completed. In the conventional building documentation, contractors often warrant their workmanship. Green contracts are slightly more challenging. Here, contractors can be held responsible for designing flaws that can ruin green-performance ratings.

Liabilities—the contract should clearly address liability in case of a green technology or product failure. The green building niche often uses experimental materials. The success rate of such entities is often not known. Green building systems might even require the collaboration of conventional and new building techniques. The contract should address these challenging issues and assign liability across all the involved parties.

Payment Provisions—the contract should include payment provisions to avoid delays or confusion over payments. Sometimes, the payment schedule is tied to completion of different stages of construction/building. For instance, some contractors might be ready to accept payments when the green certification is received. However, some contractors might not feel comfortable with this clause. It is better to have clear terms about advances, making partial payments, releasing retainage, and final payments.

It has been observed that green building projects that use visual construction often perform better. Key elements of green building modeling are weaved together and then compared with expected outcomes. This makes it easier to gauge the most probable conflicts and create possible resolutions.

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