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Construction: Law, Risk, Liability & Respondeat Superior

By: Wayne Baruch
Tel: (908) 359-3748
Email Mr. Baruch

What's the Issue?

A construction project involves so many stakeholders *1, each of whom has a several, often competing needs and interests. These interests and parties include, but are certainly not limited to: oneself versus one or more of the other stakeholders, home or business owner, financial, time, aesthetics, functionality, durability, features and specifications of products and materials, regulatory, professional standards, and ethics. When two or more parties enter into a contract, they assume certain "duties", but what happens when conflicting interests and goals affect how each fulfills those duties? What is a "successful" *2 project? What are the rewards and/or penalties for performance or lack thereof? Probably, the more important question is, how do we, as responsible members of the Architecture/Engineering/Construction (A/E/C), legal, financing, regulatory, vendor, and other related communities, manage risk to protect our clients, projects, companies, and ourselves from potential liabilities? See Table 1

*1 Stakeholder - n. refers to all parties who are involved in a project, including but not limited to: owners, architects and engineers, project managers, subcontractors, regulators, suppliers, vendors, craftspeople. The implication is the parties' interdependence in achieving a successful project completion via win-win relationships.

*2 Success - n. in this context, describes a best combination of completing the project within the contracted: scope, time frame, quality, cost of construction and maintenance, design, material selection and provision, craftsmanship, construction, thinking outside the box to save money for the owners, fulfillment of each party's fiduciary duties, durability, code compliance, and aesthetics

A risk is simply the possibility that an event or outcome may occur, and the occurrence of an adverse event or outcome typically comes with consequences. In some cases, we control risks. In the context of this paper, we reduce risk by obtaining insurance and licenses; practicing and participating in good workmanship and business practice; implementing a safety program; complying with prevailing codes, ordinances, and regulations; dealing in good faith, and so forth.

Concepts in Liabilities

In its most basic form, a liability is the consequence of an inability or a failure to manage a risk. We can reduce risk and mitigate liabilities by complying with or preferably exceeding relevant laws; participating in mutuality-agreed, valid, unambiguous contracts; acting on good, independent judgment and decisions, even those that we don't prefer; working as though one's workmanship and/or product will not be vetted, and obtaining requisite insurances, bonding, and credentials.

Before beginning any ambiguous work in the plans, every building partner *3 has a duty to approach his or her manager, the contractor, subcontractor, architect, and even the code official with related questions, concerns, and suggestions.

*3 Building partners - n. all contractors; their subs, vendors, and suppliers who are involved in a project. The connotation is that ALL are partners in the project's success or failure.

  1. On occasion, the architect may be unavailable to consult with other building partners because of contractual terms and conditions. However, since the architect's continued involvement may benefit the owner and the Spearin Doctrine (Spearin v. UNITED STATES (248 U.S. 132 (1918), Nos. 44, 45)) may apply, it is in the interest of all stakeholders that the designer remains somewhat involved in the project. See Appendix 5.
  2. Good project management requires clearly assigned duties and responsibilities among team members with minimal ambiguities. Ambiguous terms and conditions in the master contract, along with the GC's demands for good productivity and quality from building partners, perhaps supplying improper materials or instructing them to omit components of assemblies that the architect specified are certain to increase risk of liabilities for all parties. All addenda, change orders, shop drawings must be properly drafted and endorsed by the proper parties.
  3. To use a football analogy, the coach, quarterback, and the whole team practice plays, plan, and prepare for each game. Then, during the game, the quarterback calls specific plays with the guidance of the offensive coach. If a "contractor", during a huddle, ignored standards of practice and said to his squad, "we have practiced and you all know the game, so use your good judgment, run around the field, and we'll score touchdowns." All building partners must cooperate in order to score a "touchdown" by completing all terms and conditions of the project contracts, plans, standards of practice, and permits professionally.

  4. Vicarious Liability and Respondeat Superior - While each subcontractor must be held to the standards of his or her craft, the terms and conditions of any contracts that are in force, building code, architectural plans, any implied duty to collaborate with other building partners, and other expectations, the respondeat superior doctrine holds an employer or principal liable for an employee's or agent's wrongful acts committed within the scope of the employment or agency.
  5. In Valles v. Albert Einstein Medical Center, 758 A.2d 1238 (Pa.Super. 2000), the estate of an alleged medical malpractice victim brought a suit against the hospital in which the procedure was performed. The Pennsylvania Superior Court was called upon to decide whether the hospital was vicariously liable to the victim's estate for the doctor's failure to secure the victim's informed consent prior to performing the procedure. The court explained that the answer turned on whether the doctor was a "servant" or employee of the hospital as opposed to an independent contractor.

    The court noted that in certain circumstances an employer's vicarious liability may extend to intentional or even criminal acts committed by the employee. However, not every relationship of principal and agent creates vicarious responsibility in the principal for the acts of the agent. A principal and agent can be in the relationship of an employer and employee, or simply in the status of two independent contractors. If the parties' relationship is that of two independent contractors rather than employer-employee, the principal is generally not liable for the acts of the agent.

    In the Valles case, the court determined that the hospital was neither the doctor's employer; nor was it required to make sure that the doctor obtained informed consent.

    In Akins v. Golden Triangle Planning & Dev., 34 So.3d 575 (Miss. 2010), plaintiff, filed suit in the Circuit Court of Oktibbeha County against Golden Triangle Planning and Development District, Inc. (Golden Triangle) under the theory of respondeat superior, seeking, inter alia, $80,628, an amount that he claimed represented profits owed to him for constructing homes under the federal government's HOME Investment Partnerships Program (HOME), which was administered locally by Golden Triangle. According to Akins, the profits to which he was entitled were embezzled by a Golden Triangle employee, Phyllis Tate. Upon both parties filing motions for summary judgment, the trial court denied Akins's motion for summary judgment and granted summary judgment in favor of Golden Triangle. Consistent with these actions, the trial court entered final judgment in favor of Golden Triangle, thus dismissing Akins's claims with prejudice. Aggrieved by the trial court's judgment, Akins timely filed this appeal.

    Phyllis Tate (Tate) was employed by Golden Triangle as a Housing Specialist within the Housing Department. Tate's duties included enrolling the seven participating counties in the HOME program; assisting counties and municipalities in selecting eligible participants; advertising and soliciting bids from third-party contractors to construct the houses; verifying that the most competitive participants were awarded the bids; reviewing inspector reports certifying percentage of work completed on houses; and submitting requests to the Mississippi Development Authority for disbursement of money to counties and municipalities for payment to the contractors. Eventually, Tate began a scheme in which she colluded with her daughter and her daughter's then-boyfriend, Jason Clark, to divert HOME funds by transferring profits from the building projects to the checking account of a shell corporation, J-Max Construction Company, purportedly owned by Clark. In reality, J-Max was created for the fraudulent purpose of receiving the illegally diverted HOME funds. Tate convinced future homeowners to contract with builders with whom she purportedly had been working, and then requested cash allotments for J-Max Construction Company. The county or municipality receiving the grant funds wrote checks to J-Max. Tate, Clark, or Tate's daughter would withdraw the necessary funds to pay the subcontractors. When building was complete, Tate incorporated into the withdrawals the profits which should have been paid to the general contractor who actually had performed the work.

    In August 2005, Golden Triangle suspected that Tate and/or Akins was involved in fraudulent activity after learning that Akins was charging building supplies to an account opened by Tate on behalf of a county at an area building supply warehouse, thereby avoiding sales tax on the building supplies. A forensic certified public accountant, hired by Golden Triangle, investigated and determined that Tate was embezzling HOME funds. Upon receiving this information from the forensic CPA, Golden Triangle reported Tate's actions to the local district attorney, the Mississippi State Auditor, and the Mississippi Development Authority. In due course, the Federal Bureau of Investigation conducted its own investigation, ultimately resulting in a forty-seven-count federal grand jury indictment being handed down in the United States District Court for the Northern District of Mississippi.

    In due course, both Akins and Golden Triangle filed motions for summary judgment. The Circuit Court of Oktibbeha County, Judge Lee J. Howard presiding, denied Akins's motion for summary judgment and granted Golden Triangle's motion for summary judgment on the grounds that Tate was acting outside the scope of her duties in stealing government money and that Golden Triangle did not receive any benefit from Tate's illegal actions. From the trial court judgment entered in favor of Golden Triangle, Akins appeals to us.

    The trial court relied on the test in Commercial Bank v. Hearn, 923 So. 2d 202 (Miss. 2006), for determining whether an employee was acting within the scope of employment. However, the trial court opinion referred to a "three prong" test from Hearn, and erroneously omitted the fourth prong when citing to Hearn. In Hearn, this Court defined an employee's conduct as being in the scope of employment if:

    (a) it is of the kind he is employed to perform;

    (b) it occurs substantially within the authorized time and space limits;

    (c) it is actuated, at least in part, by a purpose to serve the master, and

    (d) if force is intentionally used by the servant against another, the use of force is not unexpectable by the master.

The Majority affirmed the lower court's ruling:

. . .Continue to read rest of article (PDF).

Wayne Baruch, is a skilled and accomplished Designer, Craftsman, and Project Manager with a long track record of successful on-time, on-budget completion that achieves win-win client and vendor relationships. His company, Artisans Group, LLC, is a full-service Remodeler that specializes in Older Buildings (from the late 1700's), Repairing Structural, Bug and Water Damage.

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