FTC updating Green Guides, which govern environmental building claims
Original post available at www.constructionweblinks.com.
The Federal Trade Commission’s Green Guides, which govern environmental marketing claims, will be updated this year. The Green Guides are the FTC’s primary tool for preventing consumer deception in the ever-expanding arena of environmental claims. The manual was last updated in 1998. This year’s version will clarify the legal parameters for environmental promises made to consumers and business clients.
The Green Guides are intended to prevent “greenwashing” – claims of environmental superiority or benefit that are untruthful or misleading. Companies may engage in greenwashing in an effort to sell more products or to bolster their reputation with consumers.
The revised Green Guides will address questions such as:
- What does it mean to promise that a product or service is “green” or “sustainable”?
- What steps has a company taken to earn a third-party certification or seal stating that the company’s products or services do not cause harm to the environment?
The FTC is fast-tracking this year’s update to ensure that these and other questions are answered and appropriate guidelines are in place.
Third-party certification is a growing trend in construction. Fourteen percent of cities with 50,000 or more residents have green building programs. These programs require that buildings meet certain environmental standards. The US Green Building Council, a Washington, DC non-profit organization, publishes one set of green building standards relied on by municipalities.
Green building claims can come up in a variety of contexts. In Shaw Development v. Southern Builders (No. 19-C-07-011405, Somerset County, Maryland), the contractor agreed that the luxury condominium project would be environmentally friendly. The contract required that the completed condominiums be certified by USGBC. The contract was a standard AIA form that included the certification requirement through specifications and incorporation of a Project Manual. The certification requirement read:
Project is designed to comply with a Silver Certification Level according to the US Green Building Council’s Leadership in Energy and Environmental Design (LEED) Rating System, as specified in Division I Section “LEED Requirements.”
When USGBC did not certify the completed condominiums, the developer sued the contractor, claiming $635,000 in lost tax credits. Maryland offers state tax credits of up to 8 percent of a project’s total cost for buildings that 1) are greater than 20,000 square feet and 2) are certified under the USGBC standards.
Although the Shaw Development case settled before trial, it demonstrates the importance of a complete understanding of the green building certification process before making representations or taking on contractual obligations.
Shaw Development v. Southern Builders: The First Green Building Litigation is Settled
Forecasts of a wave of green building litigation are numerous, and the key question that always arises in these discussions is: “Just who will be found responsible when a supposed green building fails to obtain the LEED rating or other green credential that the developer was counting on?” Well, the first green building litigation raising this issue, Shaw Development v. Southern Builders, has come and gone, and since it was settled, we are no wiser in terms of judicial pronouncements. But the real world example of an actual lawsuit nevertheless highlights some lessons regarding the principles that will doubtless govern many future cases.
Shaw Development involved a condominium project in Maryland that included a number of green design features intended to gain the project at least a LEED Silver rating. The LEED rating was critical to the project, because the project had been accepted into a Maryland Energy Administration program that provided an 8 percent green building tax credit. But obtaining that credit required both achieving at least a LEED Silver rating, as well as completing the project prior to the expiration date established when the project was admitted to the program. While the contractor had sued the developer asserting a mechanic’s lien claim, the developer countersued, alleging that the contractor was responsible for the project losing the tax credit, worth $635,000 on a $7.5 million project, and so likely key to its economic viability. The developer cited both the contractor’s failure to construct the building in accordance with the LEED rating system requirements and blowing the completion deadline, as bases for his claim for the lost tax credit – the contractor allegedly finished the project 9 months later than the 11-month completion schedule in the contract.
Commentary on avoiding disputes in green building projects generally focuses on the need for careful risk allocation provisions that expressly allocate the potential costs of not attaining the desired green building status among the key participants – architect, contractor and developer. But the reality is that, in the vast majority of projects, the participants will act in ignorance of this advice and simply sign industry-standard contracts that do not directly address green building issues. There is every indication that Shaw Development was just such a case. The contractor and developer signed a 1997 AIA form A101 agreement, although we don’t know to what extent the parties deviated from that form’s standard language.
The time deadline associated with obtaining the tax credit made the developer’s case relatively easy to frame in that regard. Contractors generally commit to firm completion deadlines, and the risk of timely completion was already allocated to the contractor by the AIA form agreement. To the extent that specific green building components (which were not identified in the available pleadings) were part of the specifications incorporated into that agreement, the contractor was on the hook to conform fully with the requirements of those specifications as well. These two matters of standard risk allocation likely provided the developer with the ability to create a significant risk of contractor liability via his countersuit. In response, the contractor would likely be left with relying on the mutual waiver of consequential damages included in the standard AIA General Conditions. His argument would be that loss of the tax credit would not be a recoverable element of the developer’s damages no matter what, since loss of the tax credit should properly be considered as a consequential effect of the contractor’s presumed contract breach, not a recoverable direct damage.
