by Chris Cheatham, Associate

The green building industry has grown exponentially in recent years.  According to McGraw Hill’s “Green Outlook 2009,” since 2005, the value of green building construction starts has increased from $10 billion to an estimated $36 billion to $49 billion.  With the increase in popularity in the green building industry, disputes, lawsuits and litigation are likely to emerge.  In 2008, the first significant litigation involving green building was filed.  The case Shaw Development v. Southern Builders - provides an example of how green building litigation can develop.  This article will analyze the facts, contract, causes of action and damages alleged in the Shaw Development case.  This case study illustrates the importance for parties to craft green building contracts properly to account for the unique risks inherent in green building projects.

According to the counter-complaint filed by Shaw Development, Shaw Development originally contracted with Southern Builders in 2005 to construct a Project known as the Captain’s Galley Luxury Condominiums.  The Captain’s Galley Condominium Project was to include six levels containing twenty-three residential units, a restaurant and six boat blips on waterfront property in Crisfield, Maryland.  Southern Builders agreed to serve as the general contractor for $6,995,000.  Shaw Development alleged that the contract required the project to be completed by June 2006, but when the counter-complaint was filed in February 2007, the Project was still not complete. 

Shaw Development asserted numerous claims and damages against Southern Builders as a result of the delayed completion.  Among the allegations, Shaw Development claimed Southern Builders failed to construct the green building project in a good and workmanlike manner:

Specifically, the Project Manual and Scope of Work required Southern Builders to construct an environmentally sound ‘Green Building,’ in conformance with a ‘Silver Certification Level according to U.S. Green Building Council’s Leadership in Energy & Environmental Design (LEED) Rating System. ...  In failing to comply with this contractual requirement, Shaw Development will suffer damages in the amount of a Six Hundred Thirty-Five Thousand Dollar($635,000.00) tax credit.

The contract between Shaw Development and Southern Builders was based on an AIA A101-1997 Standard Form of Agreement Between Owner and Contractor.  The AIA 101-1997 contract, however, does not address green building requirements.  Additional requirements for the Project were incorporated through a Project Manual that made specific reference to green building certification:

Project is designed to comply with a Silver Certification Level according to the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) Rating System, as specified in Division I Section “LEED Requirements.”

The counter-complaint alleged that Southern Builders breached its contract by “failing to construct the Projects in conformance with a ‘Silver Certification Level’ according to U.S. Green Building Council’s Leadership in Energy & Environment Design (LEED) Rating System.”  Shaw Development also alleged more generally that Southern Builders was negligent in providing “improper, defective and deficient construction.”

Shaw Development demanded judgment for $635,000 in tax credits that it claimed were not received due to Southern Builders failure to build a project in conformance with LEED Silver certification.  Under Maryland’s Green Building Tax Credit, businesses can take a credit for a portion of the cost to construct or rehabilitate a building that conforms to specific green building requirements.  Qualifying projects are required to submit an initial credit certificate application and upon completion of construction, “the applicant must submit an eligibility certification from a Leadership in Energy and Environmental Design (LEED) accredited professional architect or engineer licensed in Maryland.”

The case settled prior to trial, leaving the potential outcome to speculation.  From a legal standpoint, however, the pleadings in the case raise a number of interesting issues.  The Project Manual incorporated into the AIA contract only required the project be :designed to comply with a Silver Certification Level.”  Based on this language, it might have been difficult to prove that the contractor was responsible for constructing a project to LEED Silver Certification.  Additionally, the loss of tax incentives might have been viewed as unrecoverable consequential damages. The court would have had to determine that the tax incentives, as consequential damages, were reasonably foreseeable or within the contemplation of the parties at the time of the contract.

The issues raised in the Shaw Development v. Southern Builder case could prove instructive.  If you are involved in the green building industry, it is important to take steps to protect yourself and to head off disputes in potential litigation.  First, you must understand why the owner is seeking to build a green building project or seeking to incorporate green building strategies into its project.  The owner may be interested in obtaining LEED certification in order to obtain marketing benefits and possible increased profits.  Owners also incorporate specific green building strategies in order to obtain cost savings, such as energy efficiency.  Finally, as previously discussed, an owner may be developing a green building project to comply with a government regulation or to obtain an incentive.

After understanding the owner’s intentions, all parties - the owner, architect, engineers, contractor, and subcontractors - should be careful to draft a green building contract or specific green building provisions that distribute the risks consistent with the parties’ intentions.  The green building industry presents great opportunity and, through forethought and proper planning, some of the associated risk can be avoided.


The information or opinion provided in this article is the author's own and not necessarily that of Watt, Tieder, Hoffar & Fitzgerald, LLP. The author is solely responsible for the information and opinion that he or she has provided. The information contained herein does not replace seeking specific legal counsel to directly address individual client needs.

Watt, Tieder, Hoffar & Fitzgerald is one of the largest construction law firms in the world, with a practice that encompasses all aspects of construction contracting, claims and disputes resolution, and transactional legal services. WTHF principally represents large general contractors, design firms, and sureties throughout the country and internationally.