Green Building and Surety Bonds

I am a regular reader of the Best Practices Construction Law blog by Matt DeVries. If you work for a small business in the construction industry, I highly recommend that you check it out.  Matt has an excellent sense of the issues -- legal and otherwise -- of interest to professionals in construction. 

Recently, Matt provided an informative "guest post" from Kevin Kaiser of SuretyBonds.com about how green building is becoming increasingly more problematic for the surety industry.  As noted in the post, many surety companies will not bond a contractor where any type of "green" or "energy efficiency" benchmarks must be met under the contract.  The primary reason for the surety industry's reluctance to embrace green building: issues of risk management and liability.

If the contract calls for third-party certification -- e.g., by the U.S. Green Building Council -- who is liable if the building fails to meet the third-party's requirements?  Your initial answer may be the bonded contractor, but what if the contractor does not have control over LEED certification? Interesting stuff. 

The impact on contractors should be obvious: if unable to get bonded or if the bond cost is too high, then a contractor's ability to get the job and profit from it is dramatically diminished. My take: green building is here to stay in both the public and private sectors, the "friction" discussed in the post will be around for a while and it will be left to contractors to press the issues.

The key for contractors will be to have well-crafted construction documents clearly defining the following with respect to "green building" benchmarks: how will compliance be measured; who is responsible for meeting the benchmark; and the extent of liability -- e.g., monetary cap? Rebuild the entire building? -- if the benchmark is not met. This seems to be an area where contract ambiguity is not the contractor's friend.

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Comments (1) Read through and enter the discussion with the form at the end
Matt D. - January 1, 2010 8:10 PM

Chris: Thanks for the kind compliment. Welcome to the blogging world and I wish you the best in the new year. I look forward to following your posts.
Matt

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