5 Major Hazards That Introduce Liability in Construction Projects

By: Dan Taylor on October 30, 2018

Even the big construction firms make mistakes, and when they do it, millions of dollars are at stake.

Take the case of this $27 million lawsuit:

A construction firm sued one of its subcontractors due to delays in building the largest hotel in Austin, Texas. The general contractor alleged that the subcontractor didn’t adequately staff the $350 million Fairmont Austin project, which resulted in costly delays to the 37-story hotel.

As a smaller construction firm, you aren’t likely to face lawsuits on that scale, but even a much smaller lawsuit could break your firm’s back.

Since construction managers face a host of liability risks—from safety incidents to project delays—they must combine a smart use of software with preventive steps in five key areas in order to minimize liability at their construction sites and avoid a devastating lawsuit.

Below we’ll dive into some areas to watch out for when it comes to liability in construction, along with recommended actions and software suggestions.

Here’s what we’ll cover:

1. Safety: Avoid the “Fatal Four”

2. Labor: Violations Are a Big Risk to Your Firm

3. Delays: Reduce Your Risk of a Lawsuit

4. Shoddy Work: Bad Planning Leads to Quality Problems

5. Bad Contractors: Be Careful Who You Hire

1. Safety: Avoid the ‘Fatal Four’

When you think of liability in construction, this is probably the first thing that comes to mind. Worker safety is a constant concern at construction sites: It is one of the most dangerous industries of all, with more than 5,000 workers killed on the job in 2016 according to the Occupational Safety and Health Administration (OSHA).

There are so many risks to workers, including the “fatal four”: falls, struck by object, electrocution and caught in-between.

You’ve probably taken many measures to improve the safety of your job site, but every construction project is still going to have plenty of hazards. That could be a piece of heavy equipment that operates near workers, or a work area three stories up and near the edge, or just a power tool with a frayed wire you may not even be aware of.

 TAKE ACTION NOW:  Review our articles on how to create a construction safety culture at your business and construction technology examples that can help keep your workforce safe, which provide step-by-step breakdowns on how to make your job site safer.

Conduct a full inspection of the job site, and thoroughly document any potential hazards you see. That could be something like a worker who is not wearing a harness despite working near the edge of a two-story drop, or an employee who is working near a piece of heavy machinery that is operated by someone who doesn’t appear to realize the worker is there.

Then schedule a meeting with your employees—first everyone, then senior level to hash out the details and responsibilities—to identify safety hazards and come up with a plan of action that you can implement within the next month, and meet with a construction lawyer who can tell you if it meets all OSHA guidelines. This plan of action will protect you from a lawsuit or significant OSHA fines.

After the meeting, draw up a list of guidelines that you all agreed on and assign senior members of the team to conduct daily inspections and deliver a report to you on how well they are meeting those guidelines.

 SOFTWARE CAN HELP:  Check out our directory of construction management software, which is filled with software options that can help you manage worker safety. Look for software that offers some type of safety module, particularly a checklist that you can require workers to go through before beginning work at a job site.

2. Labor: Watch for Overtime Violations

Safety is not the only liability pitfall when it comes to your workers. There are also a host of labor violations that can result in big-money lawsuits for your business.

For example, employees who work more than 40 hours in a workweek must be paid time and a half, except for those who fit into a narrow category of those who can be considered management. Do you know what the criteria for that are? If you don’t, you’re at risk of being sued.

The Department of Labor also has a comprehensive list of requirements for record-keeping to track information on workers ranging from their name to their occupation to their pay rate. Is your firm abiding by these requirements?

 TAKE ACTION NOW:  Hire a lawyer who specializes in construction and labor law to conduct a thorough audit of your firm and identify any areas where you may be at risk of running afoul of labor regulations.

Your lawyer can go through your documentation to make sure it will withstand scrutiny if a worker files a complaint. If you are missing some key documentation, such as written proof that you paid proper overtime to your workers, the lawyer can identify that and tell you how to get your paperwork up to code.

 SOFTWARE CAN HELP:  Take a look at our construction accounting software directory to find software that can help you manage payroll and keep better records of worker pay.

Since overtime is one of the big drivers of labor violations, look for software that offers a straightforward way of tracking worker overtime that fits how your business operates. For example, if you require your workers to submit a request to work overtime, the software should have a way to alert the manager that a worker is about to go overtime.

3. Delays: Avoid Wasting Time Later by Planning More Now

Delays are unavoidable in construction, and they are one of the most common reasons for disputes between construction firms and their clients. But there are ways you can protect yourself from a lawsuit when unanticipated problems arise.

There are instances when a delay is not your fault, and therefore you aren’t liable: design errors, changes initiated by the owner, and weather problems or other “acts of God.” This means the key to avoiding liability is to cut the risks of delays that are caused by you, and those sorts of delays are usually caused by poor planning on the part of the construction manager.

For example, if you did not spend a lot of time planning the plumbing work, you may find that you cannot route piping through a certain part of the structure due to space issues, requiring a total overhaul of the plumbing plan.

Don’t think that you’re protected if there is nothing in the contract about penalties for delays. Courts will generally revert to “common law” in these cases, which means you could be on the hook for many thousands of dollars in worker overtime, materials, storage charges, fees and a host of other potential costs.

 TAKE ACTION NOW:  Construction delays are born out of a bad planning process. Running out of money and overbooking your crew are two of the most common reasons for delays, which can be avoided by spending the time needed to carefully estimate how much your project will cost and schedule your workforce.

Most construction managers know how to do this—they just don’t spend the time needed in the planning phase. One excellent way to improve your planning is to resist the urge to do it yourself. You probably don’t have the technical expertise to do all of the planning, so bring in your specialist and work on the plan with him or her.

 SOFTWARE CAN HELP:  In addition to our general directory of construction management software, you can dive into construction estimating software and construction scheduling software to better plan your next project. Good software should offer project and document management modules that keep you organized.

4. Shoddy Work: Bad Planning Leads to Quality Problems

Taking shortcuts in construction is a surefire way to land yourself in hot water with a client. You may save money in the short run, but your reputation will take a hit, and in a worst-case scenario you may open yourself up to a lawsuit if what you’ve built doesn’t meet the terms of the contract.

And it may take months for a client to discover water seepage or foundation issues that will require expensive rework, so just getting the client to accept the initial product won’t save you.

A big cause of quality problems on a construction project often happens in the planning phase: construction managers suddenly faced with delays and cost increases worry about pulling a profit on the project and desperately look for shortcuts or cost-cutting measures.

If, for example, you have rushed a plumbing job and used poor-quality materials that were hastily put together, and three months later the client discovers a leak that has caused thousands of dollars in damage, they most likely will demand that you fix the problem at your own expense and threaten you with a lawsuit if you don’t.

 TAKE ACTION NOW:  As with delays, all of this can be avoided by doing the proper planning. Accurately cost the project before submitting the bid, and resist the urge to low-ball it. Doing so will damage your reputation and cause you to lose more bids.

During the planning phase, map out exactly what materials you will need, the volume of those materials, and the maximum number of man-hours that the project will require. Be generous with your estimates so you have some wiggle room if you run into problems, which you inevitably will.

 SOFTWARE CAN HELP:  Construction estimating software and construction scheduling software are once again your best bets here. Also, check out construction bidding software to help make sure you have all your ducks in a row.

Software that offers materials management can help ensure you have the right materials on hand well in advance so you aren’t forced to scramble for lower-quality materials that aren’t sufficient for the job when a problem arises.

5. Bad Contractors: Be Careful Who You Hire

If you hire a subcontractor to do the wiring on your project and your client discovers three months later that your subcontractor took shortcuts that make the building a major fire safety risk, the client may come after you. After all, it was your project, you hired the subcontractor, and you bear the ultimate responsibility for verifying that the work was good.

There are a vast number of subcontractors out there, some who are great, some who are so-so, and some who are project-killers. Remember that a subcontractor’s problems will become your problems if you hire them, so thoroughly vet them from the get-go.

So what you should you look for in a contractor?

  • Strong documentation: Subcontractors that are effective and thorough always have good documentation. If they don’t, it’s a big red flag that shows they’re disorganized and most likely sloppy.

  • Good references: Subcontractors worth their salt will have good references. If you ask for references and they won’t provide them, walk away.

  • Solid company structure: Too many construction managers don’t dive deep into a subcontractor’s company structure, but you really don’t want to hire a subcontractor that may collapse financially mid-project or doesn’t have the staff that can support your needs when problems arise.

 TAKE ACTION NOW:  Check out our guide on how to get top subcontractor performance to avoid having this problem ever crop up. When you examine subcontractor candidates, ensure that they have strong documentation, good references and a solid company structure that can weather any storms.

 SOFTWARE CAN HELP:  If you need to manage multiple subcontractors, check out our general contractor software directory. Look for software that has a subcontractor management module where you can monitor their performance independent from your employees.

Next Steps: Identify Liability Risks Now

It’s time to stop what you’re doing and figure out just what liability risks exist in your business before they become a problem.

  • Set aside a day to conduct a personal inspection of the job site, and document all potential safety violations.

  • If you don’t already have one, find a lawyer who can go through your labor records and ensure you are in compliance with the law.

  • Carve out more time in your calendar for the planning phase before you start a project to lower the risk of delays. If you typically spend a couple days in the planning process, consider expanding it to a week.

  • Set aside more time in your schedule to vet subcontractors.

We’ve got more than 300 different options to choose from in our construction software directory. Depending on what you need, you can get more specific in what category of construction software you’re looking for. Start poking through the directories now to get ideas on how to put the above advice into action with the help of software: