Background

In 2006, legislation was enacted by the Council of the District of Columbia to address green building and sustainability requirements for public and private construction. The bill included a performance bond requirement, which created confusion and misunderstanding in the construction and bonding communities. Specifically, the Green Building Act (GBA) of 2006 required an “applicant,” presumably the developer, to provide a security which included a letter of credit, a performance bond, or an escrow arrangement for up to $3 million as a guarantee that the building (50,000 sq foot non-residential) would be LEED certified. If the building failed to meet LEED certification, “all or a part of the security shall be deposited in the DC Green Building Fund.” The Act is due to take effect on January 1, 2012.

Since the enactment of the Act, NASBP and SFAA have pointed out repeatedly, in letters and meetings with the DC Council and staff, that the bond requirement contained in the Act is problematic. Those concerns and comments centered on Section 6 of the Act which included: the Act does not specify which party is to furnish the security (the contractor or the developer); the performance bond appears to serve as a means to impose a penalty rather than as a means to assure performance of the obligation; and forfeited amounts of the security are not for the purpose of bringing the noncompliant building into compliance, but for such purposes as funding the costs of staffing and of technical assistance, inspections and monitoring of green buildings, outreach and educational efforts of green building practices.

Recent Activity

Last week, the DC Council passed two bills, one on a temporary basis, and one on an emergency basis, that amend the 2006 Act. Both bills, LB 19-603 and LB 19-604, still require financial security to ensure LEED certification, i.e. bond, letter of credit or escrow arrangement. Under these amendments, however, the bond requirement contained in the Act shall not take effect until the mayor has issued rules. This delay in implementation of the bonding requirement gives the surety community the opportunity to participate more fully in the rule-making process, providing opportunities to shape the implementation of any bonding regulations in an effort to come up with workable requirements.

Items of note include:

• Under LB 603/604, the “applicant” is required to furnish financial security, but “applicant” is not defined. Thus, “applicant” might be either the developer or the contractor. NASBP and SFAA believe the financial security requirement should be the responsibility of the developer.
• Language was added in LB 603/604 that permits an “applicant” to provide “binding pledge” in lieu of posting financial security, including a bond.
• The legislation provides for fines based on the square footage of the building, should the building fail to meet LEED within two years of occupancy.
• The legislation also suggests that that any unpaid fines will act as a lien on the property.

NASBP will work with DC officials charged with rule-making to assist them to develop workable regulations in 2012.