Print Friendly, PDF & Email

Inside This Issue:


  • Knowledge of Unsafe Jobsite Conditions Does Not Render
  • Engineer Liable for Injuries to Construction LaborerManaging
  • Killer Clauses in Construction Contracts: Part I

======================================
ARTICLE #1

Knowledge of Unsafe Jobsite Conditions Does Not
Render Engineer Liable for Injuries to Construction Laborer

By: J. Kent Holland, Esq.

In a recent case, the Superior Court of Pennsylvania declined to impose liability on an engineer in circumstances where the complaint alleged that the engineer had actual knowledge of dangerous job site conditions resulting in death to a laborer. This is in stark contrast to the well known case from the neighboring state of New Jersey, Carvalho v. Toll Brothers and Developers, 675 A.2d 209 (N.J. 1996), that held where an engineer observes work and inferably has actual knowledge of a dangerous condition, the engineer has a duty to exercise reasonable care to the worker. A construction worker (Steven Wagner) died while working in an unshored trench. The complaint alleged that the engineer (“Bankson”) was the project representative for the owner, and had actual knowledge that Wagner was working in a dangerously unsafe trench “in that the trench had no shoring or bracing in violation of Bankson’s own specifications, federal law and industry practices.” It is further claimed that the risk of serious injury or death was reasonably foreseeable and that Bankson’s representative took no steps to warn the workers or to correct the situation. Under those alleged conditions, the plaintiff asserted that the engineer breached a duty owed to the decedent and was liable for his resultant death.

In its answer to the complaint, the engineer asserted that it had no knowledge of an unsafe condition and no duty regarding the allegations. It also asserted that none of its services were involved in the cause of the accident. And it maintained that it had no authority to control the contractor’s work and never assumed by contract or conduct any responsibility for job site safety. The trial court granted the engineer’s motion to dismiss the complaint for failure to state a cause of action. On appeal, the appellate court affirmed the dismissal, stating, “The courts in this Commonwealth have consistently refused to impose a duty on design professionals to protect workers from hazards on a construction site unless there was an undertaking, either by contract or course of conduct to supervise or control the construction and/or maintain safe conditions on the site.”

In this particular case, the court further explained the plaintiff’s theory of liability as follows: “Appellant argues the traditional principles of negligence law should impose a duty on an engineer to exercise reasonable care for the safety of the general contractor’s workers when the engineer has actual knowledge of dangerous working conditions that create foreseeable risk of serious injury to those workers. She submits this is true even where the contract places the responsibility for safety on the general contractor and the engineer’s plans and specifications did not create the dangerous conditions. We cannot agree.”

With regard to the applicability of Carvalho v. Toll Brothers case, the Pennsylvania court stated, “We are not persuaded that the rationales expressed in these cases warrants the establishment of a new rule of law fastening liability based strictly upon an assertion of actual knowledge of unsafe word-site conditions.” “We reject any notion that a duty arises based solely upon an engineer’s actual knowledge of dangerous conditions…. If someone is under no legal duty to act, it matters not whether that person is actually aware of a dangerous condition…. Conversely, if someone by contract or course of conduct has undertaken the responsibility for worker safety that person may still be liable even in the absence of actual knowledge of the dangerous condition if they should have known of the condition.” This decision by the Pennsylvania court provides a well-reasoned discussion of the different legal theories that may apply, depending upon the jurisdiction where the project is located. Herczeg v. Hampton Township Municipal Authority and Bankson Engineers, 766 A.2d 866 (2001).

========================================
Design-Build Lessons Learned – 2001

Many of you are readers of Design-Build Lessons Learned, a publication authored each year by Mike Loulakis (mloulakis@wickwire.com) of Wickwire Gavin, P.C. that focuses on design-build case law reported upon in courts around the country for a given year. The 7th (2001) Edition of this publication was just released in late March and contains some informative reading for anyone interested in the design-build process. Loulakis, who is one of the country’s leading thinkers on the legal issues related to design-build, provides readers with an understanding of the facts of a case, the legal basis for the decision, and suggestions on practical lessons to be gleaned from it.

The 2001 Edition contains thirty cases, and discusses topics unique to the design-build process, such as ownership rights in the design documents, defining the design-builder’s scope of work, and responsibility for meeting performance specifications. It also discusses a large number of “garden variety” construction conflicts common to all project delivery systems, including disputes over insurance coverage and releases of liability. This year’s edition contains a large number of decisions arising out of power generation and process facilities constructed under a form of design-build commonly known as “EPC contracting.” Readers will notice many well-recognized engineer/construction (“E/C”) companies (Fluor Daniel, Bechtel, and Siemens Westinghouse, among others) involved in disputes with some equally well-recognized owners (Union Carbide, Solutia and DuPont).

Design-Build Lessons Learned (2001) is 83 pages in length and in a paperback book form. The retail price of $39.95 is a bargain, particularly when you consider the amount of information that is presented. It can be purchased from a variety of sources, including http://www.amazon.com, the Design-Build Institute of America (http://www.dbia.org), or A/E/C Training Technologies, LLC (http://www.aectraining.com).

========================================
Visit GlobalConstruct – Better knowledge, better decisions, better performance
• GlobalConstruct is an on-line benchmarking and analysis tool specific to the building and construction industries. It is a fast, easy way to compare your performance with that of other industry players – by industry segment, country and strategic focus. GlobalConstruct also identifies key industry success indicators and drivers of leading edge performance. It provides a fast, easy way for users to: (1) Identify and compare business or industry performance – globally, regionally, and within industry segments; (2) Recognize which are the critical success factors within specific segments and understand how these interact; and (3) Take steps to improve performance, apply best practice, and monitor results.
For more information go to http://www.globalconstruct.net/static_about.phtml or call Ben Nolan of Arthur Anderson at 703-962-3579.
========================================
ARTICLE # 2

MANAGING “KILLER” CLAUSES IN CONSTRUCTION CONTRACTS: PART I

By: Pamela R. Tittes

Today’s builder must be as expert at managing its contractual risk as it is at managing a safety program. Many large and small contractors, once considered outstanding builders, are out of business today. Some of the contractors may have even been good financial managers. However, what many of these contractors did not do well was contracting and contractual risk management.

How can the contractor create a company-wide appreciation for contractual risk management? This article will attempt to answer that question.

A Working Definition of a Contract

A contract is a binding agreement between two or more parties where consideration, usually cost plus a fee or a lump sum bid amount, is given in exchange for certain performance guarantees involving a well-defined scope of work. In theory, the contract represents a “meeting of the minds” of the contracting parties, with respect to each party’s responsibilities, obligations, and assumed risks. (This is not a legal definition.) Traditionally, contractual risk has been allocated to the party that has control over the risk. For example, in a construction contract, the contractor has control over safety conditions and, therefore, appropriately accepts responsibility for worker safety risks. Everyone understands this risk and agrees to the allocation of the risk to the contractor.

In recent years, however, this equitable approach to risk allocation has, in large part, been ignored. True, the contractor is still responsible for worker safety, but often the contractor is also contractually responsible for many risks over which it has little or no control. Today, it is not unusual for a contract to unfairly allocate risk to the contractor for differing site conditions, delay, even design deficiencies and timely payment.

Inequitable Allocation of Risk

The contractor commonly has no control over site and locational conditions since the owner usually selects the site. With respect to delay, contracts today, more often than not, contain “no damage for delay” clauses that waive the contractor’s rights to compensation, regardless of the cause of the delay. The owner can suspend work on the contract and, many times, the only adjustment the contractor is contractually entitled to is an extension of time. This kind of clause can, and often does, impose a serious unplanned financial burden on the contractor. “Pay if paid” clauses shift the risk of payment away from the owner (if financing is not guaranteed) or from the general contractor (when found in a subcontract) down to the party performing the work.

A “pay if paid” clause should only be agreed to under certain circumstances. If this clause appears in a contract between the owner and the general contractor, and refers to release of the funds by a financial institution, the contractor must be aware of the requirements of that particular financial institution for release of funds. How available is additional financing if costs escalate through no fault of the contractor? If a “pay if paid” clause appears in a subcontract, the subcontractor must have access to the financial information of the owner before assumption of payment risk is reasonable for the subcontractor.

There are several ways a contractor can minimize its exposure to inequitable allocations of risk. Once the proposed contract has been reviewed, and the “killer” risk allocation clauses have been identified, the contractor can attempt to negotiate these clauses out of the contract. For public works contracts, negotiation is usually not available to the contractor – “If you want the work, sign the contract!” However, many “killer” clauses are not enforceable on public works projects. “No damage for delay” clauses, for example, may or may not be enforceable, depending on locality. (The contractor should contact an attorney in the local project area to determine the enforceability of certain clauses in that area, before the contract is signed.)

For large scale, lump sum private projects, again, contract negotiation is often not an option. In this case, by agreeing to the contract as it stands, a contractor may waive its rights to compensation for costs associated with risks that would normally, and appropriately, be allocated to the other party. As long as the contractor is aware of the “killer” clauses contained in the proposed contract, it can make an informed business decision to:

(a.) execute the contract and accept these risks,
(b.) walk away, or
(c.) execute the contract and manage the assumed risks.

This is contractual risk management. It should be as common as safety loss control – both prevent losses. For Part II of this Article, be sure to read next month’s issue of the ConstructionRisk.com Report. It will include specific examples of Killer Clauses and practical tools for managing them.

Reproduced with permission from CFMA Building Profits, the official publication of the Construction Financial Management Association, Princeton, NJ (http://www.cfma.org)
____________________
About the Author: Pamela Tittes is a Principal at Kellogg, LLC. During her 30 years of professional experience, Ms. Tittes has worn many hats, including engineer, owner, contractor, and consultant. Prior to joining Kellogg, Ms. Tittes was the President of Tittes Construction Consulting, LLC (TCCLLC), a company specializing in disputes avoidance and resolution. Before TCCLLC, Ms. Tittes was a Vice President at Aon Risk Services, Inc, providing disputes avoidance and resolution services to Aon’s construction clients. Ms. Tittes came to Aon from Kajima Engineering and Construction, Inc., where she was Corporate Manager of Contract Administration. Ms. Tittes is a graduate of the Colorado School of Mines, with a BS in Metallurgical Engineering, and a MS in Mineral Economics. She is also a Bioenvironmental Engineering Officer in the Colorado Air National Guard.

=======================================

ABOUT THIS NEWSLETTER & A DISCLAIMER

This newsletter Report is published and edited by J. Kent Holland, Jr., J.D., a construction lawyer and risk management consultant for environmental and design professional liability.  The Report is independent of any insurance company, law firm, or other entity, and is distributed with the understanding that ConstructionRisk.com, LLC, and the editor and writers, are not hereby engaged in rendering legal services or the practice of law.  Further, the content and comments in this newsletter are provided for educational purposes and for general distribution only, and cannot apply to any single set of specific circumstances. If you have a legal issue to which you believe this newsletter relates, we urge you to consult your own legal counsel. ConstructionRisk.com, LLC, and its writers and editors, expressly disclaim any responsibility for damages arising from the use, application, or reliance upon the information contained herein.

=====================================

Copyright 2002, ConstructionRisk.com, LLC

Publisher & Editor: J. Kent Holland, Jr., Esq.

8596 Coral Gables Lane

Vienna, VA 22182

703-623-1932

Kent@ConstructionRisk.com