In both the public and private sectors, there is a desire to embrace green issues in projects and construction activities. Green or eco development has the potential to contribute to a better environment, boost innovation, stimulate investment in eco-technologies and industry, and, in the long-term, save costs. However, environmental, social, legal, economic and commercial imperatives compete fiercely in the drive for green development.
So how is the desire to embrace green issues manifested in policies and legislation? What can parties to building contracts and other property and construction agreements do to best deal with the complexity of green issues? Most importantly, what lies ahead for green issues in 2011?
Green Policies & Legislation
At both EU and national levels, various regulatory provisions have been implemented supporting sustainable development. These range from the Kyoto targets for carbon emissions and credits to the EU Commission’s Communication on Public Procurement for a Better Environment (2008) that proposed a target of 50 percent of all EU public procurement to be “green” by 2010.
Green policies and legislation affect contracts concluded in a wide range of sectors including construction and property (in every phase from design/build to lifecycle operation/maintenance by end users), transport, health services, energy, and waste and water management.
A 2010 survey, “Hitting the Green Wall…and Beyond”, on sustainability in the UK property sector published and led by the British Property Federation (BPF) revealed that 68 percent of survey participants considered green issues to be very or highly important. The authors noted it as encouraging that notwithstanding economic pressures faced by the UK construction sector, a clear majority of those surveyed considered sustainability important. It is likely this trend would be equally applicable in Ireland.
The Department of Environment, Heritage and Local Government has been charged with implementing Irish policies on green issues. The Government overall acknowledges this requirement and even the National Recovery Plan 2011 – 2014 indicates decisive action will be taken to reduce energy and waste costs and focus on specific sectors including construction and the built environment.
It is considered that green public procurement (GPP) can be applied at different stages in the public procurement process. For example, green technical specifications can be applied at tender stage (such as EU Eco-label, ISO 140001, particular BER levels, etc.); submission of relevant green experience at qualification stage; and green awarding criteria applied in addition to price (MEAT) criteria. At award stages, green contract clauses could also be incorporated. Similar “greening” requirements are also being replicated in private sector contracts.
Green Building Contracts
In construction, GCCC, RIAI and IEI standard form building contracts do not currently contain express green provisions.
In the UK, the Joint Contract’s Tribunals (JCT) standard form construction agreements now make provision for optional clauses specifically addressing sustainable development. Specifically these clauses state:
“The Contractor is encouraged to suggest economically viable amendments to the Works which, if instructed as a Change, may result in an improvement in environmental performance in the carrying out of the Works or of the Completed Works” and
“The Contractor shall provide to the Employer all information that he reasonably requests regarding the environmental impact of the supply and use of materials and goods which the Contractor selects”.
Whilst these clauses may not appear particularly onerous, both the JCT contracts and their Irish counterparts are often amended. Potentially, clauses could include penalties such as liquidated and ascertained damages or damages for breach, for example, if a particular BER rating is specified and the contractor fails to achieve this, they could be penalised. Alternatively, incentives could be offered if contractors meet particular criteria.
Other sustainability provisions can be found in the JCT Guidance Note “Building a Sustainable Future Together”. Equally, in the JCT Framework Agreement the provider (contractor) should assist and co-operate with the Employer “in exploring ways in which the environmental performance and sustainability of the Tasks might be improved and environmental impact reduced.” This would include selecting materials, adopting construction/engineering technologies and processes resulting waste, energy, carbon and/or water reductions (both during and after the construction process) and increasing use of renewables.
Value engineering and green specification items also need to be carefully addressed, particularly where cost savings are required. All contract provisions should be transparent, measurable and clearly advised to all parties with sign-off milestones to ensure full co-ordination and matching project delivery requirements. Team selection and up to date design and construction methods and skills are equally vital.
Parties, in promoting their green credentials, are increasingly exploring both binding and non-binding provisions to deal with such issues. However, it is important that all parties obtain specialist advice as to performance implications arising from green contractual obligations. In the absence of express provisions, parties may wish to consider dealing with green issues in either project preliminaries or specifications to construction contracts and note provisions for monitoring compliance during the works. Furthermore, targets or performance criteria need to be realistic and achievable. Parties may also wish to consider if obligations or targets should, or could, be stepped down to various members of the professional design team/sub-contractors.
Green Leases and Agreement for Leases
Green provisions in AFLs/leases/development agreements can loosely be described as covenants or obligations to observe certain standards to improve energy and/or environmental performance of built properties.
In the UK and Australia, government policies promote ‘green’ provisions being included in leases and other property and construction documents. Another recent US/UK announcement of interest is an alliance of major commercial building owners endorsing a “Green Lease Action Plan” committing to incorporate sustainability principles across their portfolios. In addition, according to the 2010 BPF Report above, the majority of sectors have direct experience of encountering green leases and other green agreements.
There are generally no statutory obligations in Ireland requiring parties to achieve optimum environmental performance of buildings. However, given the drive towards sustainable development, green provisions will receive increasing consideration. Examples of green lease/AFL provisions include setting energy targets for landlords/tenants, with penalties applied where these are not reached. Covenants can be imposed stipulating certain electrical equipment be switched off when tenants are off the premises, with persistent breaches incurring penalties.
Parties could also agree to restrict works/alterations which could materially adversely affect energy efficiency or waste management. They could agree to inform each other in advance of such works, monitor compliance with requirements to consider mitigation or make improvement suggestions. The principles could be equally applicable to dilapidations clauses. Parties could agree also to include environmental practice, legislative or insurance compliance requirements.
Non-binding provisions to leases could be incorporated in tenants’ handbooks or memoranda of understanding by listing practical steps tenants could take to promote energy, water, waste and carbon reductions and management, safety, eco-transportation, cleaning and recycling within buildings. Parties could consider agreeing to share related data (including metering information) to promote co-operation, cost efficiency and environmental sustainability.
In the UK and Australia, where such policies are promoted, voluntary non-binding arrangements are proving a popular way of introducing green provisions and are often drafted by parties’ lawyers to reflect agreed intentions and requirements.
In a world of ever increasing economic pressures and regulations, there will always be a need for incentives, if green provisions are to increase in popularity. Whilst there are currently no statutory incentives, there are potentially commercial/social responsibility imperatives to adopt green provisions.
For example, property sales and rental values can be increased through higher BER ratings. Equally, if positive environmental management of property is achieved through green covenants, resulting in reduced service charges from eco-savings, then this could be considered positively in the next rent review, or savings shared. Alternatively, tenants’ failure to meet such targets could result in increased rent and landlords’ failure could potentially result in rent rebates, depending on the agreement. Potential tax issues may also arise and different levels of obligation depending on the percentage of the end user’s occupation of the premises.
Incentives or penalties can be imposed if buildings reach or fail to reach particular BER/BREEAM standards as noted further below.
Following on from Part L of the Building Regulations, the European Communities (Energy Performance of Buildings) Regulations 2006 to 2008 introduced the requirement for all buildings being sold or leased to have Building Energy Rating (BER) Certificates. BER performance is calculated by reference to energy use for space heating, water heating, ventilation and lighting. The building is then rated according to colour and letter, with A1 (Green) being the most efficient and G (Red) the least.
BER Certificates are accompanied by an advisory report recommending cost effective ways of improving building energy performance. BER Certificates may encourage parties to upgrade energy performance and consequently, value, prior to disposal. While there is no statutory requirement to reach any particular BER standard but parties can, and do, contractually agree this.
BER is, of course, not the only standard parties may contractually seek to achieve in designing and/or constructing buildings. Parties can agree compliance with particular BREEAM (BRE Environmental Assessment Method) standards.
BREEAM is used predominantly in the UK and sets standards for best practice in sustainable development. It measures environmental performance against set criteria including management, health and wellbeing, energy, transport, water, material and waste, land-use, ecology and pollution. The building is then rated on a scale of Pass, Good, Very Good, Excellent or Outstanding.
There are different versions of BREEAM for different types of buildings, for example, courts, prisons, hospitals, etc. but they all address the environmental impacts noted above. In the Irish context, BREEAM compliance goes beyond the BER regime but is being used.
Green Issues – what lies ahead?
Grappling with green issues is becoming standard practice in procurement, property and construction transactions. The level and complexity of green regulation and policy at both EU and national levels has increased and is likely to continue. During the lifecycle of a property, green obligations will range from environmental efficiencies to carbon management, and user and alteration sustainability considerations to incentives or penalties. Ultimately, parties and their legal advisors need to strike a delicate balance in agreements, particularly in shifting economic circumstances, if they are to successfully embrace green issues in 2011.
* This article was published in the January/February 2011 edition of Public Affairs Ireland Journal.