Springfield and the surrounding area is experiencing significant growth in construction projects. Downtown, Missouri State University, CoxHealth, area museums and businesses are busy with activity. These projects are good for our economy; however, safe completion is critical for their economic success.
Construction and installation projects can be fraught with risk. According to the Building Trades Employers’ Association, construction is the second-most dangerous job in America, right after mining. In 2015, eight people died in construction-related accidents in New York City alone, up from three in 2014. Recently in Berkeley, Calif., six people died when an apartment balcony collapsed. Segue Construction, the contractor responsible for building the Liberty Gardens apartment complex, now is being investigated for construction practices in the 2007 project.
When trouble arises, who is responsible for issues, injuries or financial damage?
One of the most important and often underappreciated parts of a project is the construction contract. Most projects involve multiple parties – an owner, general contractor, subcontractors, architects and engineers – and everyone involved should understand the contract that delineates responsibility and risk to the appropriate party. If there are employee injuries, property damages or financial harm, the contract should determine who is responsible.
A contract has many key provisions, including the scope of the work. The scope can include the services provided, time frame for completion, rights and obligations of all parties, and the process for changing the scope of work, cost, and payment terms. Most should also include warranties that goods and services must reasonably conform to ordinary buyers’ standards and be fit for the intended purpose. Express warranties are normally defined in the contract.
Implied warranties are usually based on statutory or common law.
Another important part of a contract addresses damages, limits of liability and indemnification. These interrelated terms are often found near each other in a contract.
Damages may be defined as certain types of losses that could create liability under the contract. A limit of liability would restrict the amount of damages a party would be required to pay. Indemnification provisions allocate risk and cost between the parties.
It’s important to examine whether the party assuming the risk has the most control over the risk.
Insurance specifications are critical to providing the financial means to make the damaged party whole in the event of injury or damage. Several coverages need to be addressed with specific limits spelled out in the contract.
Workers’ compensation should be required for all parties. It will respond to work-related injuries for those on the job. This coverage also helps protect the owner and general contractor if a subcontractor is injured on the job.
General liability also should be required for all parties. This coverage is triggered by bodily injury or property damage caused by a covered party. Normally, the owner should be named as an additional insured to protect them if they also are named in a legal action. Protective policy for owners and contractors also might be appropriate to provide liability coverage for the specific project versus a general liability policy that responds to other projects a contractor may be working on.
Auto liability should be a standard coverage, responding to injury and damage that an auto creates.
Umbrella liability may be appropriate to bolster the liability limits of the workers’ compensation, general liability and auto liability. This policy is purchased in $1 million increments and should be considered for most projects to protect the owner and contractors.
There are many provisions within insurance policies that may be considered. Additional insured status, waivers of subrogation and cancellation requirements may need to be added or removed depending on each party’s interest and preference.
Other considerations include professional liability for architects and engineers, builders’ risk for the building being constructed and specific coverages for equipment and cranes.
Normally, professionals need to be engaged before signing a contract. A corporate attorney, insurance adviser and each party’s representatives should review, approve and understand the provisions and requirements. Certificates of insurance also should be obtained and reviewed before work begins.
Unfortunately, accidents, injuries and financial damages do occur. Minimizing this risk along with delineating and assigning it in a contract is critical for any project. Don’t wait for an accident to figure out who will be responsible.
Richard Ollis is the president and CEO of Springfield-based Ollis & Co., an employee-owned risk management, employee benefit and insurance firm. He can be reached at richard.ollis@ollisco.com.
