GREEN BUILDING DESIGN & CONSTRUCTION

1. GREEN BUILDING DESIGN & CONSTRUCTION A LEGAL PERSPECTIVE Presented to: AGC of TN Middle TN Branch September 16, 2008

2. Overview • What is a Green Building? • LEED – Today • LEED – Future • Why Build “Green”? • Design & Construction of a Green Building • Implementing LEED: GC’s Role • Enhanced Risks When Building Green • Effectively Managing, Mitigating & Allocating Green-Related Risks • Issues Related to Design & Construction of a Green Building • Exposure for Contractors • Abercorn Case Study • Summary & Recommendations

3. What is a Green Building?

4. High-performance building that reduces its environmental footprint through sustainable site selection and conservation of energy and resources, while improving the health and productivity of its occupants. • 3rd Party Certification (USGBC-LEED; Energy Star; Green Globes) • LEED is currently the preeminent 3rd party certification program. • Leadership in Energy and Environmental Design (LEED) • 5 Major Categories: • Sustainable Site Development • Water Savings • Energy Efficiency • Materials Selection • Indoor Air Quality

5. LEED - Today

6. Current Rating Systems: • New Construction (NC) • Commercial Interiors (CI) • Existing Buildings (EB) • Core & Shell (CS) • Homes (H) • Neighborhood Development (ND) • Numerous pilot programs (e.g. Retail) • Certification Levels: • Certified: 26-32 points • Silver: 33-38 points • Gold: 39-51 points • Platinum: 52-69 points

7. LEED - Future

8. LEED 2009 Changes (Version 3) • New 110 point scale • Certain credits with more environmental impact now worth multiple points, with intention to reward owners for employing these strategies • Water Efficiency Prerequisite – 20% overall water use reduction (excluding irrigation) • 4 additional points available through development density and community connectivity (intent to drive development toward infill sites) • 4 regional points into NC

9. Why Build “Green”?

10. Advantages of Buildings vs. Conventional Buildings • Cost Savings (First-Cost Savings; Ongoing Operating Expense Reductions) • Minimize Impact on Environment • Enhanced Health & Productivity of Occupants • Increased Value & Lease-Up Rates • Community & Social Benefits • Other Owner Benefits (Lender Incentives; Tax Abatements; Etc.)

11. Green Will Become Standard • Required by Government • Code in Europe • Washington, DC and Pasadena, CA: Require certain private development projects to meet LEED requirements. • Boston, MA: All new and rehabilitation construction projects > 50,000 s.f. must earn at least 26 LEED points. • Dallas, TX: Government buildings > 10,000 s.f. must achieve LEED silver Rating. New ordinance recently adopted; applicable to private development • Chamblee, GA: All new construction > 20,000 s.f. must achieve LEED certification as a condition of C.O. • Los Angeles, CA: Commercial projects > 50,000 s.f. must be LEED certified. • San Francisco, CA: Most stringent green building ordinance to date (enacted August, 2008). Newly constructed commercial buildings > 5,000 s.f., residential buildings > 75 ft. in height, and renovations of buildings > 25,000 s.f., must meet LEED or other 3rd party green standards.

12. Required by Owners • Lender Requirements & Expectations • Overhaul of CMBS Standards on Wall Street • Green Programs • Incentive Programs • Tenant & Occupant Expectations • Corporate green policies • Reputation/marketing • Health & productivity of occupants • Permitting & Incentives • Expedited permitting process • Variances • Tax credits & abatements • Growing Private Equity Demand/Requirement

13. Any Trends Away from Green Building? • Short-term: Pending suit regarding constitutionality of green building laws. • Albuquerque, NM suit by HVAC contractors, et al. Misguided perception that green building standards will negatively impact contractors’ business and right to earn a living. • Long-term: Green building will become the norm in U.S. • Legislation – will become Code • Lender expectations • Tenant expectations • Reputation in community

14. Design & Construction of a Green Building

15. Green Building vs. Conventional Building • Newer Materials & Technologies with Less of a Track Record • Enhanced Operations Procedures During Construction • Activity Pollution Control (ESC Plan) • Construction Waste Management Plan • Diversion of Waste from Landfill • Recycling and/or Salvaging On-Site • Re-Use of Materials • Indoor Air Quality Management Plan • Stringent Requirements Associated with 3rd Party Certification (LEED)

16. Implementing LEED: GC’s Role

17. Prerequisite 1 Construction Activity Pollution Prevention • Create and implement an Erosion and Sedimentation Control (ESC) plan for all construction activities associated with the project. • Credit 5.1 Protect or Restore Habitat • On greenfield sites, limit all site disturbance to 40 feet beyond the building perimeter; 10 feet beyond surface walkways, patios, surface parking and utilities less that 12 inches in diameter; 15 feet beyond primary roadway curbs and main utility branch trenches; and 25 feet beyond constructed areas with permeable surfaces (such as pervious paving areas, stormwater detention facilities and playing fields) that require additional staging areas in order to limit compaction in the constructed area. • On previously developed or graded sites, restore or protect a minimum of 50% of the site area (excluding the building footprint) with native or adapted vegetation.

18. Credit 2.1 Construction Waste Management: Divert 50% from disposal • Recycle and/or salvage at least 50% of non-hazardous construction and demolition. • Develop and implement a construction waste management plan that, at a minimum, identifies the materials to be diverted from disposal and whether the materials will be sorted on site or commingled. • Credit 2.2 Construction Waste Management: Divert 75% from disposal • Credit 3.1 Materials Reuse: 5% • Use salvaged, refurbished or reused materials such that the sum of these materials constitutes at least 5%, based on cost, of the total value of materials on the project. • Credit 3.2 Materials Reuse: 10%

19. Credit 4.1 Recycled Content: 10% (post-consumer + ½ pre-consumer) • Use materials with recycled content such that the sum of post-consumer recycled content plus one-half of the pre-consumer content constitutes at least 10% (based on cost) of the total value of the materials in the project. • Credit 4.2 Recycled Content: 20% (post-consumer +1/2 pre-consumer) • Credit 5.1 Regional Materials: 10% Extracted, Processed, and Manufactured Locally • Use building materials or products that have been extracted, harvested or recovered, as well as manufactured, within 500 miles of the project site for a minimum of 10% (based on cost) of the total materials value. • Credit 5.2 Regional Materials: 20% Extracted, Processed, and Manufactured Locally

20. Credit 6 Rapidly Renewable Materials • Use rapidly renewable building materials and products (made from plants that are typically harvested within a ten-year cycle or shorter) for 2.5% of the total value of all building materials and products used in the project, based on cost. • Credit 7 Certified Wood • Use a minimum of 50% of wood-based materials and products, which are certified in accordance with the Forest Stewardship Council’s (FSC) Principles and Criteria, for wood building components.

21. Credit 3.1 Construction IAQ Management Plan – During Construction • Develop and implement and Indoor Air Quality (IAQ) /management Pan for the construction and pre-occupancy phases of the building. • During construction meet or exceed the recommended Control Measures of the SMACNA IAQ Guidelines for Occupied Buildings under Construction, 1995, Chapter 3. • Protect stored on-site or installed absorptive materials from moisture damage. • If permanently installed air handlers are used during construction, filtration media with a MERV of 8 shall be used at each return grille. Replace all filtration media immediately prior to occupancy.

22. Credit 3.2 Construction IAQ Management Plan – Before Occupancy • Option 1 – Flush Out • After construction ends, prior to occupancy with all interior finishes installed, supply a total air volume of 14,000 cu.ft. of outside air per sq.ft. of floor area while maintaining and internal temperature of at least 60°F and relative humidity no higher than 60% • If occupancy is necessary prior to completion of the flush out, the space may be occupied following delivery of 3,500 cu.ft. of outdoor are per sq.ft. Once occupied, space must be ventilated at a minimum of 0.30 cfm/sq.ft. • Option 2 – Air Quality Testing • Conduct baseline IAQ testing using testing protocols consistent with the United States Environmental Protection Agency Compendium of Methods for the Determination of Air Pollutants in Indoor Air. • Traditionally, developer and architect drive the ship, but LEED requires integrated planning between design and construction. General contractor will need to play a larger role in the transition from DD’s to CD’s.

23. Ask for a LEED checklist and modify existing practices based on which points are targeted. • For some points, it is best practice to implement overall program changes. • Construction waste management • IEQ management plan can be a set of standard best practices employed on all job sites. • Construction activity pollution prevention • Develop policy for sourcing material that maintains integrity of targeted points. • MR credit 4.1 and 4.2: Recycled Content; 5.1 and 5.2: Regional Materials • EQ credit 4.1-4.4: low-emitting materials (adhesives, sealants, paints, coatings, carpet systems, and composite wood and agrifiber) • General Conditions/Pricing should reflect additional time and effort for targeted points. • Materials and Resources 4.1: Recycled Content • Sustainable Sites 5.1: Protect or Restore Habitat

24. Enhanced Risks When Building Green

25. Design & Construction Issues • Failure of innovative materials to meet performance requirements • Improper installation due to inexperience of contractors • Unanticipated performance failures due to design or construction flaws. • Construction Delays • Failure to maintain adequate records • Failure to Achieve 3rd Party Certification • Owner Impacts • Loss of Financing • Loss of Permitting or Incentives • Loss of Tenants

26. Contractual Issues • Ambiguity in contracts as to expectations, responsibilities and liabilities of parties • Enhanced obligations and liabilities of architects and contractors • Greater exposure to litigation and consequential damages • Failure of Building to Meet Ongoing Performance Requirements • Failure to properly train operations personnel • Lack of continual measurement & verification • Lack of performance of materials or technologies • Unanticipated side-effects • Failure to properly regulate tenant behavior under leases (need experienced green leasing counsel)

27. Effectively Managing, Mitigating & Allocating Green-Related Risks

28. Clearly Define Roles & Responsibilities of Various Parties (architects, engineers contractors, commissioning agent, etc.) Through Design Charrettes • Contracting Process • Clearly define roles and responsibilities of parties in contracts • Contracts for project team, when aggregated, should include everything required to complete project with no overlap • Specify expectations regarding construction waste management (salvaging; recycling; diversion from landfill measurement) • Clearly specify the types of materials to be used • No change or substitution of materials unless approved by owner, contractor and LEED consultant • Responsibility for training operating personnel • Record keeping • On-going measurement & verification responsibilities

29. Exposure For Contractors • Standard of Care & Liability • Enhanced standard of care of architect and contractor in green building context • Failure of materials or technologies to perform • Compliance with new rapidly evolving green legislation • Usually required when construction permit application submitted • Can conceivably cause project to be re-designed and/or reconstructed • Should take adequate measures to limit liability: • Limit obligations to compliance with legislation in effect at time of contract execution • Owner indemnity for any issues arising from newly-enacted legislation

30. Damages • Great exposure to consequential damages in green building context (loss of 3rd party certification, governmental incentives (tax credits/abatements), financing and/or tenants; reputation) • Consider liquidated damages provision if damages not quantifiable (Caps on damages negotiable) • Warranties • Define with specificity the breadth of the coverage • In green building context, may cover unanticipated green-related obligations, such as innovative materials and technologies required under LEED

31. Indemnity • In green context, may expose architect and contractor to greater liability: • Liability with respect to non-performance of innovative materials and technologies • Exposure to broader consequential damages (loss of financing, tenants, etc.) • Must confirm if covers green aspects of project • Thoroughly investigate materials and technologies being used; be consistently sensitive to LEED requirements

32. Keep Detailed & Accurate Records (LEED; Demonstrate Performance) • Assure Adequate Measures in Place DURING AND AFTER Design & Construction Process to Ensure Design, Construction and Performance of Building Meets 3rd Party Certification Requirements and Expectations of Parties • Proper training of operating personnel • Operation manuals • Periodic testing procedures • Ongoing measurement & verification • Ensure a LEED AP Consultant is Engaged by Owner; Proper Allocation of Responsibilities for LEED Issues

33. Education About LEED • Insurance & Performance Bonds • Insurance • Design Team – Errors and Omissions Insurance (E&O) • Protects against claims that insured did not perform up to required standard of care (level of care and skill of similar professionals in same locality) • Insures against design defects, not construction defects • Contractors – Commercial General Liability Insurance (CGL) • Typically covers construction defects caused by negligence of contractor or subcontractors (insures negligence, not perfection) • Owner – Property Insurance in a Builder’s Risk Policy • Traditionally, excludes losses resulting from design defect or faulty workmanship

34. Green-Related Issues Regarding Exclusions from E&O and CGL Policies • Typically, the standard of care (i.e., negligence) is not sufficient to cover the enhanced green-related obligations, so must confirm extent of coverage, and must thoroughly investigate the materials and technologies being used, and consistently be sensitive LEED requirements • No coverage for the following: • Warranties or guaranties or claims arising therefrom • Contractual obligation to achieve a certain LEED Rating (i.e., LEED Silver or Gold) • Contractual obligation to cause certain energy reductions or similar outcomes • Certifications, declarations or warranties in connection with LEED template • For the foregoing reasons, contractors and design professionals must be very prudent as to the contractual obligations they subject themselves to, as the same may not be covered by insurance.

35. New products out on the market: • Fireman’s Fund – Amended in 2006 to include green building specific coverage • Aon Corporation – Green Building Property Program assures reimbursement for repair or replacement of green building components, enabling owners to upgrade to environmentally efficient components (covers certified and non-certified buildings). Tied to local government mandates, as well as LEED and other recognized standards • XL Insurance – Sustainable Property Endorsement allows insured to collect an amount greater than value of damaged property if replaced with environmentally acceptable substitute (tied to LEED) • Travelers – Just recently joined USGBC. Likely to lead to additional green building insurance products in the market • Performance Bonds • Guaranty, not insurance • Guarantees owner that a contractor will perform as required by its contract, and will pay for required materials and labor • Insurance companies may be reluctant to guarantee the enhanced contractual obligations of contractor in green building context

36. Case StudyAbercorn CommonSavannah, Georgia

37. Abercorn Plaza in the 80’s

38. Abercorn Common Today

39. First LEED Certified Retail Shopping Center in U.S. (Awarded LEED Silver – C&S) 2007

40. First LEED Certified McDonald’s In U.S. (Awarded LEED Gold – C&S) GOLD

41. Sustainable Features

42. Vegetated Roof & White Roof Membrane to Reflect/Absorb Heat and Keep Center Building Cooler White roof membrane reflects heat, keeping the center cooler Concrete paving reflects heat, keeping the center and parking lot cooler Pervious pavement diverts storm water Abercorn Common Shopping Center, Savannah GA. – A Case Study

43. Pervious Pavement • Almost 1 acre of pervious pavement, which allows water to infiltrate the ground (runoff coefficient of .3 vs .95 for traditional concrete) • Decreases the need for municipal stormwater treatment • Helps remove sediment and pollutants • Decreases site runoff by 25%

44. The Cistern harvests rainwater from rooftops, • 5 million gallons annually

45. Low-flow toilets & Faucets and waterless urinals – reduce water use • Tighter envelope, better glazing & high efficiency HVAC & lighting to reduce energy consumption • Located ¼ mile from 3 bus stops, preferred parking for hybrid vehicles; bike racks & changing facilities – encourages use of carpooling & alternate transportation

46. Indoor Environmental Quality • Low-emitting paints, sealants and adhesives used • Zero or low volatile organic compounds (VOCs) • No smoking (including restaurants) – before GA became non-smoking • Increased ventilation – 30% over ASHRAE 62

47. Waste Reduction • Stringent construction waste management practices – prevented 85% of construction waste from landfills • Over 6,000 tons were recycled or reused Abercorn Common Shopping Center, Savannah GA. – A Case Study

48. 500 mile radius of Savannah, GA Materials and Resources • Over 70% of materials manufactured within a 500 mile radius • Over 20% recycled materials by cost • FSC Forest Stewardship Council Certified Wood used at McDonald’s Abercorn Common Shopping Center, Savannah GA. – A Case Study

49. Summary • Abercorn Common is: • 30% more energy efficient than code (ASHRAE 90.1) • 55% more water efficient (than 1992 Energy Policy Act) • Healthier indoor air – less toxins and more fresh air • Has 30% Less stormwater runoff • Uses no potable water for irrigation

50. Summary & Recommendations • Green Building is here to stay • LEED rating system is likely standard • Contractor directly affects several prerequisites and point • Enhanced risk issues for contractors • Knowledge and careful allocation of contractual liabilities and obligations is critical • Rapidly evolving marketplace