New York -- A new report from Marsh Inc., a leading insurance broker and risk advisor, found that despite the mounting enthusiasm for green-built and LEED-certified projects, the potential risks associated with them may be significant but construction project participants are not sure how best to manage these risks.

According to Marsh’s report, building owners, contractors and design firm executives are most concerned about potential financial risks, including the impact of green design, construction and ownership on profitability, cost and the ability to complete projects on time and on budget.

The report — based on feedback from 55 senior executives involved in green design and construction who participated in one of a series of four half-day forums held from mid-2008 to early this year by Marsh in major U.S. cities — ranked the top five risks associated with green building projects.

The Marsh forum participants cited standard of care and related potential legal risks as the second most significant potential exposure. These risks encompass the challenges associated with achieving appropriate LEED certification as required by the owner, tenant or other critical third party, defining the standard of care as the green building environment evolves as well as the competency of team members and the evolving building codes with the potential establishment of strict liability standards.

“While it’s exciting to see the green building movement gain momentum, success for the design and construction firms involved in these projects as well as for the building owners ultimately may depend on having a clear understanding of their potential risks and the most effective ways to address them,” said Michael Feigin, a managing director of Marsh and the firm’s Global Construction Practice Leader.

In terms of potential frequency and severity, the executives participating in the Marsh forums ranked the following exposures among the top five green building risks confronting the construction industry:

- Performance risks, which center on the ability of products, systems and buildings to perform in a green environment.

- Consultant, subconsultant and subcontractor risks, including challenges associated with making sure firms assigned to a project have the appropriate training and expertise, and questions about the ability to replace a defaulting contractor with one that has appropriate certifications and qualifications.

- Regulatory exposures, such as uncertainty about how the regulatory environment might evolve with respect to green building, including the concern that the potential for punitive damages might drive owners to seek warranties and guarantees to recapture costs from contractors and subcontractors.

Other key risks identified by the Marsh green building forum participants, include supply chain challenges, technology, brand and reputation exposures, education, and return on investment.

“Despite the industry’s concerns about these exposures, many of them can be addressed to varying degrees through the availability of commercial insurance and surety solutions, or in some instances mitigated through contractual agreements,” said Catha Pavloff, LEED AP, a senior vice president of Marsh and leader of the firm’s Green Building Team.

“Nonetheless, the commercial insurance market still is evolving with respect to green building exposures. As underwriters become more adept at assessing and quantifying risks associated with green building, we may see a growth of green-building-specific insurance coverages,” she added.

Marsh’s report, Green Building: Assessing the Risks–Feedback from the Construction Industry, is available free of charge by making a request online through global.marsh.com/news/articles/greenbuildingsurvey/register.php.


About Marsh Inc.
Marsh has more than 23,000 employees and provides advice and transactional capabilities to clients in over 100 countries. Marsh is a unit of Marsh & McLennan Companies (MMC), a global professional services firm with more than 54,000 employees and annual revenue exceeding $11 billion. MMC also is the parent company of Guy Carpenter, the risk and reinsurance specialist; Mercer, the provider of HR and related financial advice and services; Oliver Wyman, the management consultancy; and Kroll, the risk consulting firm. MMC’s stock (ticker symbol: MMC) is listed on the New York, Chicago and London stock exchanges. MMC’s Web Site is www.mmc.com. Marsh’s website is www.marsh.com.