Is it a good idea to guarantee LEED certification?
Cheap stunt to grab market share?
Or is this just a sign of how commoditized the LEED consulting market is becoming?
LEED consultants Energy Ace have announced that they guarantee LEED-certification on their projects, which has caught quite a bit of attention around the industry over the past few days.
I am sure attorneys all over the nation are getting pretty curious about how this firm got comfortable with making this offer.
As this lawyer writing for GreenerBuildings points out:
Energy Ace doesn’t appear to serve any design or construction role. Remember, important decisions are made at both the design and construction stages that impact achieving LEED certification. How can Energy Ace be comfortable that LEED administration is enough?
So what makes Energy Ace comfortable with offering this ? The lawyer writing the article alludes to revealing more information on Friday, and we’ll be checking in to see what that is.
My take on these things is that there is no free lunch and most people do things for rational reasons (most of the time).
So we just need to locate the quid pro quo in this deal and decide if it contains sufficient countervalue for Energy Ace to make this offer.
What limits their exposure on this type of agreement? Possible issues to explore are:
- What does the owner have to agree to contractually to get this kind of protection?
- Is it worth it to the ownership? Have owners really been that skittish about “certification risk” in the first place, since the real estate industry has largely accepted the need to green their properties already?
- Isn’t there already enough knowledge present in the industry about the certification process that makes a guarantee redundant?
- Does the presence of this guarantee allow them to charge more for services (as they are theoretically offering more protection to the owner for the economic risk they are taking)?
- Is it transferable? When a bank forecloses on a project that Energy Ace is working on, can the lender take over the guarantee and enforce it once they step into the owner’s shoes? Or would the guarantee be void the moment any of the other key parties are no longer on the active on the job (like the general contractor, for example).
- How is liability determined if LEED-certification is ultimately not achieved as promised?
Yep, we’re pretty curious here.
With real estate construction volume and transactions down so dramatically, third parties such as LEED consultants have to market extra hard to win business within the much smaller pool of projects available.
LEED consultants are currently price takers within their sector, as fees have been decreasing in a weak industry. That is partly due to the presence of more firms entering the sector as green building is taking off.
So while the certification guarantee might help Energy Ace win more business, I’m concerned that it opens the strategic floodgate to intensify competition and weaken pricing for LEED consulting services beyond what is reasonable.
It is not a good point in the real estate and overall economic cycle for this intensity of competitive forces to become so active in green building, just as it is starting to take off.
My questions to the (many) Green Journey readers who are LEED consultants:
