AGC & OSHA Subcontractor Liability

[Dick Seibert]

I get a daily newsletter from the AGC, they are trying to get OSHA to stop holding builders/general contractors liable for the acts of subcontractors. They finally won a case on this issue with a divided opinion, in the past builders/general contractors have always been held liable for the acts of their subcontractors. What's next, if "Controlling Employers" are not held liable for subcontractors' OSHA violations, will they try for exemption from state and IRS "Controlling Employer" liability for the acts of subcontractors?

AGC to Fight OSHA’s Appeal of Decision Invalidating Multi-Employer Citation Policy


The recent decision of a divided Occupational Safety and Health Review Commission (OSHRC) in the case Secretary of Labor v. Summit Contractors Inc., OSHRC, No. 03-1622, 4/27/07, could put an end to The Occupational Safety and Health Administration's (OSHA’s) practice of using the Multi-Employer Citation Policy to cite general contractors following serious accidents without considering the surrounding facts or circumstances.


AGC has made several efforts to persuade OSHA to modify its multi-employer enforcement policy, but the agency has consistently refused to do so. AGC’s Executive Board has determined that this case will advance AGC’s efforts to modify OSHA’s policy and has elected to fight OSHA’s appeal of this decision.

In vacating the citation issued to general contractor Summit, OSHRC Chairman W. Scott Railton and Commissioner Horace A. Thompson III agreed in separate opinions that OSHA’s Multi-Employer Citation Policy is invalid in the construction context when applied against a "controlling employer" who neither creates nor has employees exposed to the cited safety hazard.

OSHA’s current Multi-Employer Citation Policy is described in OSHA's Field Inspection Reference Manual (CPL 2.103) (http://www.osha.gov/Firm_osha_data/100004.html), which provides that although employers may have neither created the hazard nor had any employees of their own exposed to a safety hazard, they still may be cited for a safety or health violation, if they control the work site, or if they have the authority to correct the hazard to which another’s employee is exposed.

The citation in question arose from certain scaffolding violations committed by a masonry subcontractor on a construction site in Little Rock, Arkansas. In addition to citing the subcontractor for the violations, however, OSHA also cited Summit, the project’s general contractor, on the basis that, as general contractor, Summit was the “controlling employer.” No Summit employees were exposed to the hazard created by the violations.
OSHA is currently still issuing such citations. On May 21, OSHA petitioned the United States Court of Appeals for the Eighth Circuit (St. Louis, Mo.) to review that decision. AGC will urge the court not to overturn the OSHRC decision. OSHA’s enforcement practices in the construction industry could be significantly affected by the Commission’s decision. It could, for example, put an end to OSHA’s practice of citing general or “controlling” contractors following serious accidents without determining their responsibility for creating the hazard or exposing their workers to the hazard.

California contractors better not rely on this decision, I'm sure there is no way CALOSHA will hold "Controlling Employers" harmless for the acts of their subcontractors, and contractors from other states better wait until the Eith Circuit has ruled on OSHA's appeal.

It's interesting that the NAHB hasn't joined the AGC in this action, at least with a "Friend of the Court" petition in the appeal.

[BigLou80]

Re: AGC & OSHA Subcontractor Liability

Dick,
why should the GC be held responsible for the acts of the sub contractor ? a sub contractor is its own entity responsible for its own actions ? I do think that a GC should mandate compliance but not control the actions of a sub. The only exception to this is if they know their is a violation and do nothing to correct it, Kinda like if you know a sub is cheating on his taxes with 1099's and you still keep hiring him anyway

Lou

[Dick Seibert]

Re: AGC & OSHA Subcontractor Liability

Lou:

Your attitude on this issue is typical of the attitude of contractors here, I can't believe it, but I know you are a good guy so I'll try to explain the situation.

An owner contracts with a contractor to build him a house, the owner has contractual right to expect the contractor to do everything and be responsible for everything he does. The contractor in building the house can hire workmen and buy materials, the contractor is responsible for the work of those workmen and the materials that he incorporates into the house. The contractor can elect to subcontract portions of the work he contracted to provide in the construction of the house (providing there is no non-assignment clause in the contract), that right to subcontract portions of the work doesn't in any way mitigate the responsibilities of the contractor. The owner contracting has every right to expect the contractor to be fully responsible for the work he elects to subcontract to others, that includes responsibilities for the safety of the workplace, payment to all workmen, for all materials, and the quality of all work contracted for. If this wasn't the case, an astute owner would insert a non-assignment clause in the contract precluding the general contractor from subcontracting any portion of the master contract.

The language used is "The Controlling Contractor", somebody has to control the contract and take responsibility for everything which is done on the site. In addition to this, the property itself is responsible for any injuries incurred upon it, and all workmen have the right to lien the property for wages, taxes, or unpaid materials used in the performance of the contract, the general contractor, or "Controlling Contractor", has to hold the owner harmless from all claims against the property, otherwise an injured workman could lien and foreclose the property to pay his medical costs stemming from that injury.

A contractor can subcontract portions of his contract to others (barring a non-assignment clause), he can subcontract the work itself but not the responsibility for that work.

If the 8th Circuit upholds the decision of the OSHRC, it will become law only within the 8th Circuit:
* Arkansas
* Iowa
* Minnesota
* Missouri
* Nebraska
* North Dakota
* South Dakota

If this happens somebody will try within another Circuit, if the two Circuits come down with opposing opinions, the U.S. Supreme court should grant Certiorari. At some point I think the various states and the IRS will get involved in Amicus Curiae petitions, the theory could also be applied to taxes and other responsibilities of the controlling contractor. If this happens and the U.S. Supreme Court upholds the decision, I would bet that owners will be advised to put non-assignment clauses in every contract so that nothing can be subcontracted! AN owner would be crazy to contract with a contractor who wasn't responsible for all acts of his subcontractors.

Hopefully the 8th Circuit will overturn the decision, otherwise there will be chaos in the building industry.

[Harringtonjason]

Re: AGC & OSHA Subcontractor Liability

I disagree with your interpretation of that decision Dick. I do agree that it is and should be the responsability of the prime contractor to oversee job site safety. I have been folowing the case you are refering to and my interpretation is that in cases that involve a prime contractor who is hiring a subcontractor but not directly involved with daily opporations would be exempt from OSHA penalties. Like in case where a big national commercial contractor is awarded a maininance contract after a job site is closed out. It requires a coat of sealer applied after all significant work is finished. The sub comes in 6 months later to apply the product without significant oversight except maybe an inspection after work is complete. Should the prime contractor be responsable for a hazard created by the subcontractor? I think it is getting into the gray area. Maybe the arguement should be that a prime contractor should not be allowed to take on jobs that involve less than two trades like they do in California. This would make the sub the prime contractor and he would be liable. I personally think it is a good decision in the best interest of the industry and the general public. We should not have these governmental bodies that enforce "rules" without logic and this case is about an osha official going beyond his duty to show his unchecked authority. When that happens it takes a good idea "job site safety" and turns it into bueaucratic red tape and gives parasites jobs.

Jason

[Dick Seibert]

Re: AGC & OSHA Subcontractor Liability

Jason:

If the case is upheld of course it would be good for general contractors if the subs became liable for their own acts; however, I am looking to the ramifications of this decision. There is an old saying at law: "Tough cases make bad law". If this is upheld, what owner is going to enter into any contract without a non-assignment clause? No owner is going to want to become liable for the acts of 50 subcontractors on a jobsite, he wants one responsible party to assume all liability. On most AGC jobs the subs all put up bonds, but this will spill over into residential construction where subs are seldom bonded. If this is upheld the least a knowledgeable owner is going to require are insurance certificates from all subs, and bonds from all subs, he is also going to want to be named on all of those policies and bonds. Many subs who work for residential contractors can't qualify for bonds, bonding companies hate residential work, they stopped bonding me for residential in 1971 and even informed me that they wouldn't bond me for any commercial if I had any residential under construction. My mix was usually 50-50, I believe your mix is about the same?

If this is upheld, and it is in the Federal Courts, it could even spill over and prevent the IRS from collecting subcontractors' tax delinquencies, the ramifications are endless, I don't think it will be upheld, but all we can do is wait and see, I think it'll be years before we see the end of it, if it's upheld I see it going to the Supremes. It also brings up the question: Who is the controlling contractor? If the general contractor isn't responsible is there any controlling contractor on the jobsite? It's impossible to control without assuming liability for what you are doing. If the general isn't liable for everything on the job, who needs him?

I don't follow your line of thought here, but when you say:

This would make the sub the prime contractor and he would be liable.

You think we should have a whole series of prime contractors instead of one general contractor with several subcontractors?

[Kye GC]

Re: AGC & OSHA Subcontractor Liability

Hey Dick,

Did you get my last email? Not sure if you PM'd me which was sent to my email or if you emailed me. Anyway I replied to your email addresss listed.

Also great thread, I have to admit I thought you were a little extreme on your veiw of contractors responsibilities and law before moving to CA. After working here for three years I couldn't agree with you more. I do believe CA is ahead of the rest of the country regarding defining responsibility and trying to ensure a sustainable industry.

Kye

[Dick Seibert]

Re: AGC & OSHA Subcontractor Liability

Kye:

Yes I got a PM from you, thanks.

Sometimes reading these posts is like turning the clock back 30 years, when I see things I use to do, or scaffolding like we use to do before CALOSHA. Just hearing these guys bitch and moan about code requirements now that they've got something as simplistic as the IRC is actually funny at times. It's hard for me to believe that one nation could be at such different stages of development; and that being said, it appears that Canada is well ahead of California in many areas. Most here have never filed a negative declaration much less an Environmental Impact report to get a permit, or paid mitigation fees, many have apparently never gone to neighborhood meetings to secure approval before their appearance before a Design Review Commission, we even have a city her which has changed the name of it's Design Review Commission to "Architectural Review Commission", when I asked why I was told to make damn sure everybody got the idea that without an architect they weren't getting anything approved.

The issue here is who is the "controlling employer"?

on the basis that, as general contractor, Summit was the “controlling employer.”

It's interesting that the case involved here is in Arkansas, OSHA hitting Arkansas? Can we only hope they will cross the border into Texas?

[Harringtonjason]

Re: AGC & OSHA Subcontractor Liability

Dick I think I am following your line of thinking. I guess I agree. I don't do very much commercial a few jobs per year at most. I just hate feeling like OSHA is the enemy. They are there with me to help promote safety. It sucks to want to do the right thing but have to worry the second you drop your guard someone is going to nail you with a whopping fine.

I feel like working with the code enforcement bodies in my area is a collaboration. They are there to protect your customers from safety errors and provide a second set of eyes. I have always been leary of OSHA they provide astronomical fines for minor violations. They also enforce in a lopsided way. I can drive around my area and spot blatant and dangerous stuff on job sites from hundreds of yards off. Most of these job sites will never get a visit. The bigger class A (engineering) contractors get a regular scheduled visit every week.

The note about the sub-prime thing is in regards to reading California contract law, I remember reading that a B license holder can not take a job that does not utilize less than 2 seperate trades, unless it is carpentry, or something along those lines. The OSHA discrepancy involved a prime contractor hiring a single trade to perform a job. The prime contractor was just a middle man that provided no jobsite supervision due to the limited scope of work. I am under the impression that in California this would not be allowed. That sub would be required to contract directly with the project owner, eliminating the OSHA conflict all together because the prime contractor would now be the creating party.

Jason

[Harringtonjason]

Re: AGC & OSHA Subcontractor Liability

I just went back and reread the original article that I first saw this

http://www.constructionweblinks.com/...2007/osha.html

It's funny what the brain does after a few weeks. I think I am a little to young to go senile.

Jason

[Dick Seibert]

Re: AGC & OSHA Subcontractor Liability

Jason:

Thanks for the link. I think the relevant portion is:

The decision is not binding on states, such as California, that have their own state plans for regulating occupational safety and health. Many state agencies that adjudicate state-issued citations follow the precedent of OSHRC, but such adherence generally is not required. Similarly, state OSHA enforcement agencies are not required to follow federal enforcement policies and frequently do not do so.

The decision also does not affect other legal principles that influence the relative obligations of contractors on a construction site as to safety and health issues, such as state tort law, building codes, voluntary consensus codes and standards, contract terms or insurance considerations. It is questionable, therefore, whether the decision, even if affirmed, will have a practical effect on the extent to which general contractors seek to direct, influence or control OSHA compliance and safety performance by subcontractors.

The statement: "The decision also does not affect other legal principles that influence the relative obligations of contractors on a construction site...." is what concerns me, I wonder how the authors came up with that analysis and/or interpretation? I have no problem confining the decision to OSHA issues, I just don't want to see it spread to IRS and state unemployment and tax issues.

You are correct about California law, a general can do an all carpentry job, or can do carpentry plus a minimum of two other trades. The state doesn't want generals to compete with it's specialty contractors becoming, in effect, paper subcontractors, contracting to do the work, then subcontracting to those who are licensed to perform the work. Let's face it, we are not tested on electrical, plumbing, or any of the other trades, so we shouldn't be allowed to do them because we have demonstrated no knowledge of those trades. General Contractors are tested for their knowledge of carpentry, plus overall trade knowledge to run the project.

I know what you mean, as I was driving down the street yesterday I looked up on the hill and a house was being remodeled with scaffolding up all around it, there was no screening on the scaffolding, I had to think to myself: "I must have made a wrong turn and ended up in Texas"!

[BigLou80]

Re: AGC & OSHA Subcontractor Liability

Dick,
I see your way of thinking and I agree. The GC is responsible thats thier job to be responsible for all work taking place on the job site. I am new to commercial work and I am learning that I need to change my mindset. Today the whole job site was an osha violation with 5 trades working on top of each other.

Lou

[Dick Seibert]

Re: AGC & OSHA Subcontractor Liability

Thanks for being open minded on a subject many here don't want to acknowledge, I've even read architects say the only reason for a general contractor on the job is to assume the overall liability. Many architects around here are running their own construction management divisions, but the downside for them is the fact that they are assuming the liability if there is no GC in the mix. If everything is going to be done cost plus because the architect can't bring it all together within a reasonable time, and everything can be subcontracted out, who needs a general contractor if he's not going to be the legal buffer between the potential claimants and the architect and owner?

Last week I talked to a former apprentice of mine who is now the general manager of Conco's Seattle division, he reports that general contractors are now down to approximately 20% of all work he bids, approximately 40% of projects are now being run by construction managers without a GC, and the remaining 40% are owners who form corporations for each project, hire an estimator and a superintendent, and liquidate the corporation upon completion of the project, I'd say percentages are similar here in the Bay Area.

[dmwyatt]

Re: AGC & OSHA Subcontractor Liability

This is interesting to me. Several points I wanted to make:

1. OSHA brings a lot of hate upon itself because of lopsided enforcement. I have never, ever even heard of a residential contractor being visited by OSHA in our county until last summer. We got a small fine for having a walkboard about 6" out of level in 24 feet. I'm generally fine with safety regulations, and I would expect to be fined for violating them. What I was steamed about was the lopsided enforcement. To this day, I still haven't found any residential contractor who has been visited by OSHA in my county.

2. Dick, if I understand your argument correctly, your concern with this case is that if GC's aren't held responsible for this facet of their sub's operations, than what's to stop others from extending this to other facets. Basically, yours is a "slippery slope" argument?

[Dick Seibert]

Re: AGC & OSHA Subcontractor Liability

Dustin:

You are absolutely correct, I think you are the only one here to get the analogy so far, and I love your description as the "slippery slope", I wish I had thought of that myself, ever think of going to law school?

Here's how it goes:

1) The decision survives appeal making it law in Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota.

2) An insolvent subcontractor in one of those states fails to pay his taxes, the IRS places a rock on the bank account of a general contractor from whom the subcontractor was subcontracting work.

3) The general contractor puts up a bond to free up his money and continue in business, he sues the IRS to release the attachment on the basis that the federal courts in his jurisdiction have ruled in the OSHA case that the "controlling contractor" on the jobsite is not responsible for the actions of his subcontractors, so if the general contractor isn't responsible for Federal OSHA compliance he isn't responsible for Federal tax compliance.

All this being said, the underlying land is still responsible for what goes on under in rem law, so the injured party would still have lien rights against the land, and the IRS would still have a tax lien against the land which was in the process of being *improved* by the workman who was either injured or who's taxes weren't paid. But I would bet that the courts wouldn't hold the land responsible for the OSHA fines or IRS fines and penalties.

The law is full of gray areas, and arguments can be made either way, but this is how I see it coming down. The ramifications of this "slippery slope" are huge.

On your comment about enforcement, a couple of years ago OSHA admitted to never having made an inspection of a residential jobsite in two states, Texas and Oklahoma, and promised to start enforcing the OSHA requirements on residential construction in all states equally. Unequal enforcement is a big problem to those of us use to strict(er) enforcement, particularly in this age of the Internet where we can see how the laws are enforced unequally. A really good Texas framing contractor named John (kpatrix) posted a picture of his scaffolding recently, a guy from Rhode Island called him on it, he went out and bought metal staging. He didn't know because that's the way it's done in Texas, but now we all see things like that.

The argument for unequal enforcement of laws goes back to the community standards doctrine, and the fact that the developing states should be allowed some freedom to develop and catch up. China is making that argument now on air pollution, China is now the biggest polluter in the world after just passing up the United States, if you remember Kyoto (which we didn't sign because of this) granted China time to pollute while they developed, the argument being that the United States developed under no pollution restrictions, so the third world countries should be allowed some latitude to build their economies and catch up. Meanwhile most of our smog is coming through the jet stream from China. The same argument is being made here, the developing states need time to catch up, let's face it, some areas of this country still don't even enforce building codes.

[Bob Kovacs]

Re: AGC & OSHA Subcontractor Liability

But Dick, you're assuming that item #2 will actually happen at some point.

I know you say you've talked to the IRS, and that they have every right to do this, but let's face it- they never have, and likely never will. And if they do, I surely hope that there's an OSHA case, or some other precedent for the GC to use to avoid being dinged for his sub's failure to pay taxes.

If I buy a car from the local car dealership, and do my part by paying the sales tax that's due on the car, should I later be prosecuted if the dealer decides not to forward that money to the state? It's the same rationale that you keep trying to apply to a GC having to be 100% responsible for everything his sub does- from paying his taxes to wiping his ass.

Bob