Published on : July 31, 2012

Sustainable Healthcare Contracting and Expansion Issues

Sustainable Healthcare Contracting and Expansion Issues

Sustainable healthcare development works not only for fighting global warming, preserving animal habitats, vegetation, ground water, the ozone and air quality, but also in many ways that benefit the healthcare industry.  The prudent healthcare facility developer in the 21st century is building and renovating/retrofitting and saving money for tomorrow.  When one considers that the payback period for most energy efficient/water efficient/environment-friendly materials and apparatus is only a few years, it no longer makes sense to postpone a retrofit or not to adopt this type of construction when building ground-up.  Additionally, the government is now mandating going green (in some shape or form) and even those facility operators who thus far were reluctant to “convert” to sustainable building practices, will soon be forced to adopt them anyway. 

There are many reasons for buildings to go green.  Buildings are one of the heaviest consumers of natural resources and account for a significant portion of the greenhouse gas emissions that affect climate change.  They represent 72% of U.S. energy consumption and also use 13.6% of all potable water (15 trillion gallons per year).  40% of all raw materials used globally are by buildings.  And in healthcare, the numbers are even more significant.  It is estimated that 10% of the CO2 emissions in the U.S. come from the healthcare industry.  After fast-food, the healthcare sector ranks second as the most energy-intensive industry, and hospitals alone, with 24/7 operations, account for 60% of that.  Hospital consumption is about twice the energy used per square foot of traditional office space.  Some reasons to go green are basic economics. 

In sustainable buildings, operating costs are typically lower for energy consumption, water use, and maintenance.  Employees take an average of almost three less sick days per year.  Healthcare costs for those same employees are reduced in green buildings and their productivity is shown to be higher as well.  Building systems also last longer, need less maintenance, and with more efficient ones (many of which are Energy Star Rated), their useful lives are extended.  Even property and casualty insurance premiums can be lower for a green building than one that lacks sustainability.  This in conjunction with the installation of renewable energy devices can drastically improve a healthcare facility’s bottom line.  By adding the numerous incentives available in the sustainable building world such as grants, tax credits, green power purchasing programs, expedited permitting processing, local building/-zoning fee reductions; green loan programs, and more, it does not make sense for the healthcare industry to not fully embrace sustainability.

Healthier and Happier Employees

The direct energy and water cost reductions found in green buildings, although in many cases are driving the sustainability train, are only a part of the picture.  In the Leadership in Energy and Environmental Design ("LEED") system (or Green Globes system for that matter), energy efficiency is no more important than having green cleaning, better indoor air quality, a sustainable materials and resource policy, recycling programs, staff training  in sustainable methods, and more.  The benefits to the occupants of green buildings abound as well.  A healthier employee is a happier and more productive worker.  The key to remember is that it is the totality of the entire building operation affecting the building systems, structure and the occupants is what is important.  This holistic approach works for economic and non-economic reasons.

For example, when employees have visual access to the outdoors, control their own task lighting and ventilation, and do not come onto contact with toxic cleaning chemicals, their productivity increases.  And this non-direct economic benefit is not limited to employees occupying a commercial building.  Studies have shown that sustainable hospitals with beds which provide good outdoor views and day lighting can increase patient well-being and, in turn, reduce the need for medication, reduce stress and anxiety, improve post-operative recovery, lower blood pressure, and result in shorter hospital stays.  So one can see why green buildings are attractive to numerous physicians and other healthcare providers for the bottom line of patient outcome as well.   

Meeting Green Building Standards

However, one cannot focus on green building benefits without considering the myriad of legal issues relating to their development and maintenance.  This is especially significant if those same buildings need to meet either the U.S. Green Building Council's ("USGBC") LEED or the Green Building Initiative ("GBI") Green Globes certification requirements or other standards to qualify as sustainable, environmentally friendly, energy efficient buildings.  Some of these issues relate to construction/renovation, some to leasing and others to owner/manager aspects of property development and operation. 

While healthcare property developers may, prior to acquisition, only be concerned with traditional aspects of the acquisition, new construction, or renovation of an existing property, they may neglect to focus on the possibility of meeting green building standards in the future (either for LEED or similar certifications, or to meet newly promulgated local, state or federal requirements).  Examples of this would be a failure to address these “green” opportunities in due diligence and professional engagements.  Furthermore, construction agreements should be reviewed to insure that if a change order substitutes a certain material that was designed to be green, that it would have to be replaced by another one that is green as well.  This is extremely important if certification is involved and if a non-green material is used instead of one that is green, points could be jeopardized and certification levels could be at risk. 

To address green building construction, the two main form agreements available are by ConsensusDocs and the American Institute of Architects ("AIA").  Both have sustainability provisions and the AIA has even come out with a guide (the AIA D503-2011 Sustainability Guide) which now includes defined terms to help the architect/contractor/property owner get to a green finish line. 

Parties performing services to sustainable healthcare facilities must adhere to green building standards and policies.  Their contracts should have provisions requiring them to fully understand what their responsibilities are and how their services interrelate with the overall operation of the property. 

In this regard, though property owners/facility managers may be concerned with meeting green standards today, they should also draft service/maintenance agreements with continued commissioning, metering, monitoring and reporting in mind. This is because once a healthcare facility is developed as a sustainable building, there will be a need to maintain that status, and to determine (whether this is done in-house, either partially or entirely, or by an outside vendor, either partially or entirely) and promulgate policies and agreements which will need to be in place to insure compliance.

This concept is also important when the healthcare provider is leasing space in a green building.  Don't forget that the leases executed for those spaces subject the tenant to comply with a myriad of sustainability practices and possibly related costs.  Although the benefits of being in a sustainable building far outweigh those of being in a non-green property, the lease will be the pivotal instrument in determining what the tenant must, or in some cases, must not, do in the leased premises.  Contract drafting then is only a part of what constitutes Sustainable Building Law.  When considering sustainable healthcare development, one must also address all federal, state and local legislation and building codes in the property's jurisdiction. 

In summary, in the Green Building World those in the healthcare development field should be involved in every step of the way.  This is not only true when a hospital is contracting to purchase a property or engaging a general contractor for ground-up construction or major renovations, but also when they are executing agreements with all the various players in the green building world to keep the property sustainable.  Although certifications through LEED or other organizations are extremely important, even if a healthcare facility operator is not interested in meeting those approval requirements, it still behooves them to adopt green building practices wherever they can (even if only on a dollar saving and patient-care outcome basis).  As such, it is incumbent upon everyone involved in the sustainable building process to be mindful of all legal ramifications that may present themselves.  This is true from the perspective of the healthcare facility owner/operators, medical office tenants, contractors, engineers, architects and vendors supplying products or services to the property, attorneys and other consultants. With statistics showing lower operating costs, healthier and more productive staff and improved patient outcome, sustainable building practices are no longer an option, but an imperative.  As the use of renewable energy technologies by LEED-certified property owners grows, it is important for practitioners to effectively guide their clients through this difficult technological and legal terrain. Further, as laws and regulations at the federal, state, and local levels continue to adapt to the increasingly carbon-constrained economy, the nuances discussed in this article will only become more complex and new issues will ultimately emerge.

About the Author:

Richard J. Sobelsohn earned his accreditation from the U.S. Green Building Council as a Leadership in Energy and Environmental Design Accredited Professional (LEED AP). As a LEED AP, Richard has in-depth knowledge of LEED Green Building Rating Systems, the globally accepted rating and certification program for design, construction, operation, and maintenance of green buildings.  An attorney in the Real Estate Practice group of Moses & Singer LLP in New York City, he represents developers, corporations, financial institutions and individuals concerning a variety of commercial real estate transactions including sustainable development, acquisitions, dispositions, financing, condominium offerings and leasing. Richard serves as a member of the National Legal Working Group of the U.S. Green Building Council, an adjunct professor of law at both Brooklyn Law School and New York Law School, and lectures and writes extensively on the subject of sustainable development. Richard can be contacted at rsobelsohn@mosessinger.com.

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