Despite the economic recession, the number of green building projects across the U.S. continues to grow. Yet, as they assess the widening opportunities for building green, building owners, contractors, architects, engineers, and home builders express concern about a variety of risks that may be associated with these projects, including potential financial exposures, uncertainty about evolving regulatory standards and legal issues, validating the qualifications of consultants and subcontractors, and assessing the long-term performance of green building materials, among other potential issues.

A new report from Marsh Inc., the world's 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 Accredited Professional, 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.