Value Beyond Cost Savings - Green Building Finance Consortium

Appendix GSustainable Property Cost-Benefit ChecklistPotential Property Benefits Description of Benefit Applicability Analysis 106B. Reduced Development Risks1. Reduce construction risk Sustainable projects can reduce construction risk through:• Reduced cost volatility• Commissioning• Integrated design• Local materials• Improved/earlier goal setting; “values clarification”• Better communications among key participants inprocess• Reduce entitlement risk• Improved timing and content ofneighborhood/public appearances• Improved timing and content of regulatoryapprovals• Reduce legal risks• More explicit service provider contracts• Better, earlier communicationConstruction risk is the risk that a project will not becompleted to the planned quality level on time or withinthe allocated budget. Construction risk can result fromdelays, financial problems, contractual issues, legalproblems, design issues, operational problems orenvironmental issues. Construction risk is also unique toeach project. Each project has its own stakeholders,regulatory issues, and other factors that are unknown orunknowable at the start of a project.The primary way that construction risk is mitigated isthrough higher equity requirements, fixed priceconstruction contracts, retainage, budget contingencies,and payment, completion, and performance bonds.Based on a survey by Marsh published in early 2009, thesurety markets (that provide payment, completion andperformance bonds) have not specifically responded tothe green industry. They noted the specific concernsrevolving around onerous contract provisions and the riskof inadvertently guaranteeing a specific performance orefficacy for energy usage, water consumption, and/orLEED certification. These markets are looking at greencontracts more closely, and it is possible, as more positiveexperiences are achieved, that new products will beavailable in this area. 109To assess potential benefits due to reduced constructionrisk, as a result of sustainability, it is important to evaluatethe specific sustainability experience of the contractor,subcontractors, design team and other projectparticipants. Given the added potential communicationproblems from having additional participants, teamexperience working together, or a plan to mitigate lack ofprior team experience can be important.109 “The Green Built Environment in the United States, 2008 Year-end Update of the State of the Insurance Market,” Marsh, February 2009.257