Sustainability legislation: A green path to recovery?

The last six months have seen not only the onslaught of recession but also the publication of two research initiatives into sustainable development in the United Kingdom. In January 2009, Taylor Wessing released its report, "Behind the Green Facade - Is the UK development industry really embracing sustainability?", the result of a survey of over 800 respondents across the development industry, available at www.taylorwessing.com/sustainability. Following this in March, the Joint Contracts Tribunal (JCT) published its guidance note, "Building a Sustainable Future Together", focusing on the construction industry's attitudes to contractual provisions addressing sustainability.

It is interesting to note that while both these consultations commenced at the beginning of the economic downturn, their results demonstrated that the enthusiasm of the industry to address sustainable aspects of development continues unabated.

The report included the following as some of its key findings:

• There is currently no consensus as to what sustainability entails, and common criteria to frame project specific objectives is therefore required
• While corporate end users perceive additional cost, they are willing to pay more for "sustainable" buildings
• Though contractors and professional teams are well informed, end users and financiers require better understanding of sustainable issues
• A mixture of greater regulation and government incentives will drive behavioural change, along with "green" contract agreements (In this respect the government reiterated its support for environmental issues in the recent Budget with a bespoke section on low carbon recovery, including an additional £100m to build new energy efficient houses.)

The JCT guidance note reinforces the importance of sustainability to the construction industry. Key findings include:

• The introduction of contract provisions, albeit on a limited scale, and contract specific guidance on sustainability issues would be welcome
• Sustainability provisions need not only be included in contractual conditions, but also through other contract documents such as schedules or the specification
• Respondents felt that any contract clauses addressing sustainable development must be legally enforceable or risk being ignored, and also that the nature of construction contracts will evolve to encompass both obligatory and aspirational provisions
• Client lead on sustainability is essential, but early involvement by all parts of the supply chain is preferable

Though the report and the guidance note reflect eagerness in the industry to both address sustainability issues and to do this contractually, parties may find themselves hampered by the absence of any clear definition of sustainability or a common approach on how to achieve it. The guidance note includes several optional clauses to assist parties to incorporate sustainability into their development, but also leaves it to the parties to determine how onerous or not these obligations will be. It is fair to say that already in the industry we can see a variety of "green" clauses in building contracts, ranging from "light green" collaborative clauses through to "dark green" prescriptive or mandatory clauses. Future regulation, such as the Government's carbon reduction commitment in April 2010, may also make it easier to define and draft "dark green" clauses.

Some of the optional clauses proposed by the JCT address issues of:

• Sustainable development and environmental concerns: by placing a requirement on the contractor to assist the employer and others in exploring ways of improving environmental performance
• Environmental impact of goods and materials: requiring the contractor to provide all information that an employer may reasonably require regarding the environmental impact of goods and materials
• Value engineering: while traditionally used to drive cost savings through innovation in design and/or construction, a contractual encouragement may be given to the contractor to suggest changes to the employer's requirements to give rise to environmental benefits
• Performance indicators and monitoring: assesses the contractor's performance by reference to appropriate key performance indicators - BREEAM ratings are one such example. Parties need to take care to select suitable and achievable targets

The construction industry is clearly taking issues of sustainability seriously, and though industry standard contract provisions may be in their infancy, they are evolving. The impetus of both additional regulation and green provisions in lease agreements will of necessity filter down into building contracts. Presently, parties will need to consider to what extent they want or need to address sustainability in their projects, how it will be measured and how to incorporate those requirements in their contracts. While not imposing obligatory requirements on parties, the JCT guidance note provides welcome direction to those parties wishing to pursue sustainable development. This is definitely an area for expected change in law and practice to watch for, and perhaps to formulate plans to tread a “green” path in the future.