Managing the Risks of Third-Party Sustainability Certification Failures

Abstract

The environmental risk levels are on the increase worldwide. As a result, building construction projects have been witnessing a paradigm shift in the way their development plans are approached, with more buildings being designed and constructed to sustainability standards that are higher than those customarily applied for traditional buildings. This experienced change has contributed to adding new challenges to the management of such projects, primarily due to the more stringent specifications being used and certifications sought. As such, the risks pertaining to third-party certification failures rank among the top challenges that arise on a sustainable building project (SBP). This is owing to the importance of certification in terms of materializing an array of projects benefits, including securing capital funding, providing better social publicity, achieving higher market values, and taking advantage of tax incentives. This paper studied SBP certification risks by examining how such risks are addressed through the contract terms and inquiring about the perspectives of concerned professionals as to the approaches being adopted for dealing with these risks. The adopted methodology involved (1) examining relevant contract terms found to be used by three standard contract forms, and (2) conducting a survey study that aimed at reflecting the state of practice in relation to addressing certifications and their related risks. The findings based on the response of participating professionals ranked the preferred approaches that are being followed in the case of certification failure as follows: (1) retaining control by the project owner in dealing with the ensued damages, (2) obliging the participant principally responsible for seeking certification to cure the situation, (3) waiving damages, and (4) applying green liquidated damages. The paper concludes with a proposed framework that can be followed by SBP owners for deciding on the appropriate basket of remedies for dealing with sustainability certification-failure risks.