GREEN LIQUIDATED DAMAGES: DETERMINANTS OF THE OWNER'S RECOVERY MECHANISM

Abstract

Literature concerned with green buildings show that they provide an array of benefits. Owners of construction projects incur an additional investment in their attempt to achieve a third-party green certification for their projects. To protect the owner’s interests, appropriate contractual mechanisms must be devised to allow the recovery against potential damages upon not achieving the desired certification. As such, the objective of this research revolves around investigating a mechanism for the recovery of green liquidated damages (GLD). The steps followed in this work involved: synthesizing guidelines related to the assessment of liquidated damages, determining the components of GLD, proposing a theoretical model that can assist in deciding on the rate of recovery, and determining the credits that are statistically significant for achieving various desired certification levels. Data available on 349 Leadership in Energy and Environmental Design (LEED) projects was used to determine the significant credits and thereby validate the proposed theoretical model. The research’s main findings showed that the credits governing the failure from a desired level to the following lower level are different from those governing the failure to the next or later levels. The work outcomes contribute to helping project owners identify the rates at which GLD may be levied.