How I Learned to Stop Worrying and Blow Up My Market Share
Yesterday afternoon I received a newsletter from Energy Ace, a commissioning and LEED services firm out of Atlanta, with the headline "LEED Certification, or Your Money Back". Unnecessary comma's aside I found this to be a rather startling claim. Reading further into the release you can actually see the word "guarantee" (gasp!)... Full press release available here. How it works:
"clients must allow Energy Ace to oversee LEED administration, fundamental commissioning and energy modeling for each project -- services that the company provides in-house. After signing a standard service contract, Energy Ace would conduct LEED charettes -- the project phase where sustainability measures are mapped out -- and at that point, if everything looks good and team members are cooperative, the contract would be amended to guarantee certification. If a project misses its LEED target level (like Silver or Gold) or fails to earn certification altogether, Energy Ace would refund its LEED administration fee, which is between 30 percent and 45 percent of its total fees..."
First Take: Pros and Cons
On the pro side, theoretically their market share will increase (probably as much for being the first to offer it as for the peace of mind it will give owners... BD&C already scooped this, and you're reading it here). In addition to new clients, one of the clauses is that their firm must perform what is essentially their full suite of LEED related services instead of just CxA, LEED coordination, or modeling. This additional control helps both their bottom line and their ability to ensure that the project is moving along the right track. Also, by ensuring that at least the first phase of design and analysis has taken place, they have the ability to walk away from the promise if things don't look so good. Figuring out where to draw the line is likely going to be an interesting exercise!
Not having seen the contract itself, I suspect (but can't confirm) that there is a clause in this guarantee that limits possible compensation for a missed target to the "LEED adminstration fee, which is between 30 percent and 45 percent of total fees" ONLY. In other words, this guarantee could potentially limit the owner's maximum compensation for a botched certification to the portion of the fee agreed upon. In a situation where missing certification could mean hundreds of thousands of dollars in lost incentives and countless other damages, does this contract actually serve to insulate Energy Ace from paying for these damages? Will owners see the "guarantee" and sign away their rights, or will they recognize it and demand no such clause be included? Again I should point out that I'm only working from a press release here and have no idea about the specifics of the contract. I certainly don't mean to imply that Energy Ace is actively gaming their clients!
The other big issue here is what does this mean for the other parties involved? Does a guarantee from one party, specifically an administrator who is responsible for overseeing and coordinating the LEED documentation process overall, in any way reduce the liability of the architect, engineers, or contractors involved in the project? I suspect not... Due to the fact that the owner may have signed away his right to collect damages beyond the fee from Energy Ace (again... speculation) they may pursue the other parties with additional vigor.
Obviously Energy Ace would not have the ability to really guarantee the certification unless they agreed to offer true design-build service with complete control over every aspect of design, engineering, and construction. No matter their efforts, a mistake from the contractor on SSp1, Construction Activity Pollution Prevention would mean that regardless of the efforts of the LEED administrator, the project would not achieve certification. This firm has worked on nearly 100 LEED projects to date, and I suspect that they're banking on the fact that as an industry we're over-concerned with missing LEED certification targets, an opinion that I'm increasingly leaning towards. Though there will doubtless be projects that miss their mark, my guess is that over the next few years the volume of these projects will be much smaller than many suspect.
If a project doesn't achieve the certification levels the owner desires they're liable to sue everyone anyway, regardless of what the contract says about guarantees. On the other hand claims that would normally be defended by an insurer may now be void, and the company may have to defend itself. I think it goes without saying that such a claim raises the standard of care, probably beyond what an insurance company is willing to tolerate.
Is This Wise?
My guess is that the long term result of this for the company will be that yes, they may have to pay back a few fees over the years, but the marketing benefit and requirement for full services will more than offset the loss. At the end of the day I'm still on the fence about whether or not this is a good idea overall. I'm very interested to hear reader comments on this... please don't disappoint!