Value Beyond Cost Savings - Green Building Finance Consortium

Appendix GSustainable Property Cost-Benefit ChecklistPotential Property Costs Description of Cost Applicability Analysis 120performance or efficacy for energy usage, waterconsumption, and/or LEED certification. Green contractsare being closely monitored.Marsh also reports that some jurisdictions haveimplemented regulations that require bonds to guaranteeLEED certification and specific performance standards.Such regulations have generated scrutiny from suretycompanies both individually and on the part of theindustry association. However, green building ordinancesthat contain surety requirements have not yet beenpushed down to the contractor level. There have been noknown issues of green related contractor defaults. 1242. Legal/contractual risks Sustainable properties introduce a number of importantlegal and related contractual risks that increasedevelopment risk if not appropriately mitigated throughimproved contracts, training, and behavior. Some of theserisks include:• Design firm professional liability• Construction contracts• LEED/Certification Liability• Misrepresentation and fraud risk: marketing andleasing protocols• Warranties• ESCO contracts• Entitlements• Insurance contractsStandard construction loan risk management techniqueswill also reduce potential risks. Reputable andexperienced borrowers, construction managers, or aguarantor of debt by a credit-worthy borrower guarantor isone method. Construction loan draws should be linked toconstruction performance, based on inspections andlender approvals. Delay cost reserves covering anypotential expenses that could be incurred (such as mightbe payable to a key tenant due to delay) can also be putin place. Budget contingencies, typically at 5% to 10% ofthe total project budget, are also usually required.Design firm professional liability.Design firm professional liability is primarily an issue forarchitects and design firms who want to limit the potentialfor litigation, but improved and more clearly specifiedcontracts will also help investors. For any owner orinvestor who has gone through litigation, they know thateven the winners often do not “win.”From the owner perspective, design and construction isalready complex, and additional sustainabilityrequirements and issues can make it even more so.Given the leadership of architects and designers insustainability, it is natural and appropriate for owners tolook to architects for education and guidance in this new277