How Green Building Laws Affect Builders Today

A front-end loader at a construction site Image credit: <a href='http://www.123rf.com/photo_2448379_construction-equipment.html'>snehit / 123RF Stock Photo</a>
Anytime heavy equipment is used at a construction site the twin challenges of managing blowing dust and storm water require careful attention. As the world deals with a degraded environment from years of neglect and pollution, continued environmental controls will be needed wherever construction is taking place. (Image credit: snehit / 123RF Stock Photo)

By Matt Doyle

Green building laws have changed the face of the modern construction industry. Stricter laws governing dust control, surety bonds and eco-friendly construction have many contractors and builders concerned about the increased expense that must be ultimately passed on to owners and property developers.

Pros and Cons of Eco-Friendly Building

Advocates for green building say the increased cost and scrutiny from local, county, state, and federal inspection departments is well worthwhile for the environmental benefits. Environmentally friendly construction practices help ameliorate damage to fragile ecosystems and reduce emissions and pollution from a number of industries, making them long-term solutions to many of the environmental problems facing our world today.

Opponents of green building say the added expense and oversight stifles cost-effective development and results in costs that drive many contractors out of the construction business. They point to surety bonds and other preventative statutes as sources of contention between contractors and public works and building department personnel, and claim the added expense results in loosing badly needed jobs. As one contributor wrote on greenbuildinglawblog.com, these opponents also cite logistical issues pertaining to uniform enforcement of the new codes as being of particular concern.

The Surety Bond Dilemma

One small item making a big impact in the estimated costs of green construction are the increased demands for surety bonds — money paid by contractors as an assurance to building and code enforcement departments that the contractor will adhere to all applicable environmental regulations. Depending on the projected risk of the market and the credit history of the applicant, these bonds can have premiums ranging from one to twenty percent of the bond amount. Bond amounts can fall anywhere between a few thousand dollars for a specialty contractor such as an electrician, to several hundred thousand dollars for a general contractor, depending on the size of the project, the reputation of the contractor, and how stringently regulations are enforced in the market under consideration.

Surety bonds are a three-way agreement between the contractor, or principal, the company providing the bond, or surety, and the government or private entity requiring the bond, or obligee. The principal uses the bond provided by the surety as a guarantee to the obligee that their regulations and best practices will be followed at every phase of construction. Opponents of green building regulations cite these bonds as an unnecessary financial burden on contractors and their employees.

Regulation and Expense

Every time a contractor is forced to pay fines against the surety bond, this depletes the part of the bond known as the penal sum. Because environmental regulations are strictly enforced across the nation, many contractors say they may not be able to continue in their chosen field.

Proponents of environmental construction regulation say the added up-front cost will be offset by the use of green materials that use less nonrenewable natural resources, thereby saving time, money, and the environment. They also point to stricter regulations on the horizon, noting that those who don’t start adhering to these practices now will certainly push themselves out of the market as new International Code Committee restrictions are implemented.

Matt Doyle is an expert in surety bonds and when he is not writing you can find him traveling the world one random place at a time.

9 thoughts on “How Green Building Laws Affect Builders Today”

  1. This is a strange article. The author tries to link surety bonds and green building laws without any real connection. No laws are cited. No examples are cited. Just a lot of conjecture. Claimkit

  2. This article has been written by someone who does not fully understand construction surety bonds. The phrase “Every time a contractor is forced to pay fines against the surety bond” does not make sense. A bond principal’s payment of costs does not diminish the penal sum of a performance bond. And I have not seen data on the percentage of green building owners who require a performance bond, but suspect that percentage does not vary significantly from industry experience.

  3. I would also like to see some examples being cited here. But I can agree that this is a pressing issue to many builders trying to offer green building services. RLK Builders Inc.

  4. The person writing this article does not understand construction surety bonds. For example, the phrase “Every time a contractor is forced to pay fines against the surety bond” makes no sense. A surety bond principal paying costs – even if those costs are fines or are unexpected – does not diminish or reduce the performance bond penal sum as a result. The sentence starting with “Bond amounts can fall anywhere between a few thousand dollars for a specialty contractor” is confusing; is the writer referring to bond premiums or to the penal sum? If referring to premiums, premium rates depend far more on the bond principal’s cash, character and competency than on any regulatory environment. Ultimately, the purported connection between scrutiny of green building projects and the surety markets is not demonstrated in this article. Perhaps the writer should consider a different tag line.

  5. As a surety professional who has spent a great deal of time researching the potential use of surety bonds in the green construction market, I have to agree with Chris about the confusing nature of this article. Perhaps it was supposed to be more of an opinionated editorial, but none of the claims are supported by any examples or arguments shared by surety or construction professionals.

    Currently, the general consensus among surety and construction professionals is that — although enforcing green construction law is important — it would be far too complicated and risky to use surety bonds to ensure projects are completed according to certain environmental standards. There are too many people involved in any given construction project to put the entire onus of green building responsibility on the contractor and his surety. This is why Washington DC amended its Green Building Act in December right before it went into effect in January.

    For more information on how green building and surety bonds are interrelated, check out

    Unsure(ty): How Will the Green Building Act Change the Role of Surety in Construction?

    OR

    Four Lessons Learned from Washington D.C.’s Green Building Act

  6. I also find this article strange. While I would agree that “green building” may increase project costs, I don’t understand the author’s link between surety bonds and green building laws. Bonds have been required on public works projects for decades. The risk to a contractor on a bonded job has always been to complete the job according to the specs, and to pay all bills associated with the project to deliver it lien-free. Some form of regulation and compliance has always been a part of that risk. Plus, the fact that a project is “green” does not by itself mandate a surety bond be in place – any project with tax dollars as part of the payment to the contractor is mandated to be bonded (“public” jobs). On all “private” work it is discretionary. The only consistent bond amongst all projects would be the license bond, which is a small compliance bond generally, and not even a requirement in all states. Finally, the contractor does not pay “fines” against their bond. By performing the work properly, meeting the terms of their contract and paying all bills they have little to no exposure under their bond – it is only when they fail to do these things during contract prosecution that they may have to defend themselves (and the surety) from claims against their bond, or be prepared to pay the claim amount (or reimburse their surety)if they are at fault and have no defenses.

  7. I find several things in this article very hard to believe. I have been in the surety business for 25 years and I have seen rates range from one half of 1 percent to possibly as high as 3.5% if funds control fees and premiums are combined. If he could produce one example of a 20% premium rate I would be surprised but even so this is not a rate I have ever seen or heard of and is certainly not common. Above 2% is twice the norm and is unique enough. I think he might be confusing industry language referring to a rate of $20 per thousand (which is 2%) with his so called 20%. Interesting.

  8. Every construction company must have an advocacy of being green builders. If such will happen, it can be a great help in the conservation of the environment. CHJ Surety Bonds

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