Question: Is an ounce of legal prevention worth a pound of cure?
The short (and unanimous) answer: Yes.
For the long answer, please read on.
The Danger Signs
In a perfect world, it’s a handshake and then we build. Then we’re paid. Then we’re happy ever after. The end.
Meanwhile, back in reality, things don’t always work that way. Scaffolding collapses, someone’s arm is broken; disagreements arise; contract language takes on dual meanings; promised payments stay promises, not cash.
What are the signs that legal action might be brewing?
AWCI’s general counsel, Don Gregory, Esq. of Kegler, Brown, Hill & Ritter in Ohio, says that "a serious jobsite accident is most likely going to lead to legal action. So would any situation with a large monetary impact on the contractor. Disputed change orders can also lead to legal actions.”
John Rapaport, director of operations and legal counsel of Component Assembly Systems, Inc. in New York, says, "The moment you hear about an injury to anyone on the job, you have to act.”
"With payment issues, the sign is usually that you’re no longer being paid. On occasion you receive written notice from a GC that you’re in default on your contract and that, of course, is an unmistakable sign.”
Dave DeHorn, chief estimator at Brady Company/Los Angeles, Inc., says it "depends on whether the problem started with the owner, general contractor, architect or another subcontractor. If it originated with the owner or architect, a good GC will notify you of the potential problem and will most likely ask you for a plan of action.
"If the problem starts with the general contractor, then a change in the payment cycle would probably be one of the first signs of a problem.
"If it is another subcontractor that is the cause of the problem, then a lack of on-site personnel from that sub would be a sign that something is not right.”
Joe Keipp, owner and partner of River City Drywall & Painting, Inc. in Missouri, says, "Usually, one of the first signs of trouble that might lead to legal action is when communication breaks off. Sometimes we sense that the other party becomes deceitful and we lose trust; not long thereafter, egos tend to stand in the way of honest and productive communication.”
John Hinson, division president of Marek Brothers Systems, Inc. (Dallas) in Texas, says, "The first sign of trouble may be schedule delays, alleged work defects, disputes about quality of material. There are many signs, but one of the most reliable ones is when the parties begin referencing ‘contract language’ in face-to-face communications.
"When it comes to payment, the first sign of trouble is when payments are late and promised deadlines are missed.”
When you encounter any of these signs, or any other you perceive may head you toward litigation, the wrong thing to do is nothing, hoping it’ll go away.
Should this situation wind up in court, it is crucial that you then present accurate and verifiable data that clearly show your position or actions.
Keep in mind that with our overloaded legal system, the issue may not go to trial for a year or more, and trying to remember the circumstances surrounding the situation will not even vaguely fly at that time. Memory is imperfect at best, and tends to be somewhat biased to boot.
In other words, you must be able to present documentation and evidence that are current to the occurrence. You can bet the opposition will.
Gregory advises, "Once you see that a problem is going to develop into a legal situation, you now must put as much as you can in writing in order to clearly set forth your position. Also note that you need to phrase things as ‘This is the way we will proceed, unless we hear otherwise from you,’ telling the other party that silence—because they might not answer letters or emails—means acceptance of your position.
"Also, you should have kept good records from the beginning. You cannot afford to be an optimist in this environment because even the best laid plans can misfire if the GC’s bank decides to call in his loans, leaving no money to pay you.
"In other words, you need to document as you go. You need to keep good records of everything. Retain all project documentation. Better still, implement a computer program that does this, a program the troops feel comfortable with and will actually use.
"Also, to make it easier to keep good records as a matter of course, you need to train your employees—especially foremen and supers—and establish procedures and forms for daily reports, for exception reports, for incident reports, for any change order request, and you must be very clear in all this documentation, unequivocal.”
Rapaport adds, "With an injury you have to make sure that you gather all the data, a full recap of the incident—as much current, factual and verifiable data as possible. However, we try to put ourselves in a situation where it goes to doesn’t always go to legal.”
Craig Daley, president of Daley’s Drywall and Taping in California, says, "It is a fact that these days we subcontractors take all the risk—our clients make their contracts read that way. Therefore, we are well insured and feel that having good insurance and a good broker is the best way to protect our company from legal trouble.
"If we see a situation heading for legal action, we immediately contact our broker who then initiates the defense process by turning things over to his claims department for lawyer selection and monitoring of progress.
"That said, where appropriate—or possible—we like to resolve legal cases in person, so we try and set up face-to-face meetings as early as possible.”
Michael Coakley, senior project manager/owner of C.J. Coakley Co., Inc. in Virginia, has a plan set in place. "In case of a job site accident,” he says, "we have a standard protocol that kicks in the moment it happens, whether this was one of our own guys or someone from another trade. All our foremen have accident kits that include disposable cameras so the moment an accident occurs, the standard accident-protocol calls for an investigation that includes pictures, interviews and other reports and documentation that show precisely what happened.”
Keipp says, "If a dispute or disagreement threatens to head for legal action, we like to bring in a mediator in an effort to take personal feelings out of the equation.
"As far as injuries go, we have well documented injury protocol in our safety manual. In case of an accident, we take photographs of the scene, interview any witnesses and do post-accident drug and alcohol screening to establish whether or not these were a factor.”
Hinson says, "If we are headed for legal action, we start collecting and organizing all our documents and data. Still, we also exhaust all opportunities to negotiate responsibly with the other party, which hopefully will settle things. Failing that, we call our attorney and/or insurance agent.”
At the first hint of possible legal action, you need to gather and assemble evidence that clearly—and unequivocally—shows what happened, what the situation is, and what actions you have taken to prevent and/or remedy it. This evidence must hold up in court.
Evidence is any matter of fact that a party to a lawsuit offers to prove or disprove an issue in the case. The court uses a system of rules and standards to determine which facts may be admitted, and to what extent a judge or jury may consider those facts as proof of a particular issue in a lawsuit.
One important benchmark of admissibility is relevance. Federal Rule of Evidence 402 states, in part, "All relevant evidence is admissible, except as otherwise provided.” The goal of this rule is to allow parties to present all of the evidence that bears on the issue to be decided and to keep out all evidence that is immaterial or that lacks relevance.
So, what, in our environment, constitutes evidence?
Gregory says photographs and videotapes are both admissible in court. Project documentation, contracts, riders, emails and letters are also considered evidence.
"Contemporaneous documents, recordings, pictures and videos mean a lot more in court than a witness trying to remember what he said, then she said, then he said,” Gregory says. "However, if you are taking pictures, do not take pictures of anything that may implicate you or show you in violation, because you cannot destroy these images once taken, and they may be requested by the other party in court.
"When it comes to recording conversations, be aware that the law differs from state to state—in some states you can record a conversation without the other party being informed; in some states, you cannot.
"That said, I would go ahead and use any and all digital devices at my disposal. With cell phones and such it’s so much easier these days to thoroughly document a current situation.”
Rapaport says, "The key is to document everything, whether by reports, data, emails, photos, videos or interviews. Document as much as you can so that you can present a very clear and true picture of what happened, or what the situation is.
"In case of an injury, gather fresh information, speak to your foreman, and make sure he has gathered all reports. They key here is that you cannot wait. Your data must be current. Who was working where? Who was responsible for what? Document it and try using data tied to visual backup.”
Daley says his company requires daily field reports on every project and adds that "these reports are invaluable when trying to defend yourself.”
Robert Aird, president of Robert A. Aird, Inc. in Maryland, also collects photos and daily reports. "We once averted a mammoth lawsuit by producing a single photo of work at one window that the other side said we had done incorrectly,” he says. "The judge threw out their claim.”
Hinson’s company gathers historical records related to the situation in addition to other evidence mentioned by the others.
The key—and this cannot be overstressed—is that your data must be both relevant and current. Memory is poor evidence. Take as many pictures, interview as many employees, gather as much relevant correspondence as needed to unequivocally represent the situation or occasion.
An Ounce of Prevention
Some situations will wind up in court no matter what you do. But there is a lot you can do to head litigation off at the pass. And whatever you can do, do it—you’ll laugh all the way to the bank.
Gregory notes that "unfortunately, few contractors seem willing to spend money on that ounce of legal prevention, hoping instead that there won’t be a problem. This cost, though, compared to what a full-blown legal proceeding will cost, is nothing.
"As an example, whenever the sub comes across a new contract—as is usually the case when you start working with a new GC—it is imperative that he has counsel review it for anything that might raise its ugly head and bite later. Once that particular contract has been reviewed, the sub can then review future contracts with the GC himself or herself. But something encountered for the first time should be reviewed by counsel.”
Rapaport’s experience shows that "the best insurance against false or petty injury claims is a well-trained and loyal crew. We’ve had situations where a carpenter, working a new tool, nicks himself or twists an ankle, and he (or she) does not want to make a claim, knowing, for one, that it’s not a big deal and will be better tomorrow, and two, that it will involve us as employers in a lot of red-tape and additional costs. These employees are, of course, worth their weight in gold, and we look after them very well. Again, best cure is a loyal, competent, ready-to-work staff.
"Also, our company software does a good job of protecting us. (Note: Component Assembly Systems Information Manager—CASim—was covered in depth in a September 2007 article).
"CASim allows us to determine where people worked when, and this stood us in good stead when we were accused of having partially caused an accident in a stairwell ‘from drywall lying around.’ Using our software records, we could prove that we had no workers in that stairwell at the time of the accident, and this held up nicely in court.
"CASim also allows us to look at patterns. If the same employee is hurt over and over, it starts to look suspicious. In fact our insurance company, claims that as many as 20 to 30 percent of injury claims these days are fraudulent, made by people who are only out to cash in on workers’ comp. We agree and can see it in the data.”
It is clear that avoiding legal proceedings is to everyone’s advantage—except perhaps that of lawyers’. What can you do to steer clear of this misery?
"One aspect of preventing legal actions is to garner a reputation among your steady clients that you’re not one to lie (as in "prevaricate” or "lie down”) or back down if you’re being treated unfairly,” Rapaport says. "The other aspect, of course, is to establish a good and trusting relationship with your GCs. Now, the same GC may have good and bad project teams, and you just have to learn how to deal in this situation. You want to back your GC as much as you can, not try to blame him for mishaps, but you have to look out for your own well-being as well; it’s a balancing act.”
Daley says that "communication is the best way to avoid legal trouble. Talking to an injured employee while off work, letting him know you care, or talking to your client’s project manager and accounts payable people will often keep you out of expensive legal trouble.”
Coakley adds: "Be proactive from the start. Work with the GC as a partner, and take the best possible path you can. Stay in communication and hash things out as needed. Define things as clearly as you can in your job specs or shop drawings so there are no ambiguities. Chances are then that you will not end up with a legal situation.
"Also, whenever we do work for a new GC, we hash out a boilerplate contract language for that particular GC. We bring his proposed boilerplate to our legal counsel who then reviews and proposes changes that are more in our favor. This then goes back and forth with some give and take until we have an agreed-upon boilerplate with that GC. Each subsequent job with that GC then uses the same language for the actual contract, except for what is usually our Exhibit B—the job specific exhibit, with scope of work, schedules, etc.
"It is a sad state of affairs that you need to invest money in order to steer clear of legal situations, but it is a cost of doing business these days.”
"Generally speaking,” says Keipp, "the best ways to prevent legal action is to educate yourself and understand what the potential threats are. Also, be attentive and realize that communication can usually solve most problems.
"Regarding collecting money, when you’re having difficulty getting paid by the GC, try calling the owner before you turn it over to your attorney.”
Hinson says that the way to steer clear of legal problems is to "take care of your own house first. Always document and keep accurate records. Work safely and provide a safe environment. Promote and provide proper training for your employees. Also, always perform credit checks on the project’s owner to verify that the money for the proposed work actually exists. And if you can, the very best way to protect yourself is to work only for contractors who avoid and eliminate arguable situations.”
Self-preservation, whether individual or corporate, is a strong force and one that in this environment can overshadow agreement, communication and the greater good.
But "eat or be eaten” rarely works in the long run. This philosophy creates enemies and burns bridges.
Coakley keeps cool. "Calmer heads must prevail,” he says. "You can and must come to some agreement. You want to work with this GC (or your subs) in the future; you don’t want to burn any bridges. You want to preserve your relationship. Once you’re in court, you’re fighting, and by fighting, you’re creating an enemy rather than a partner. Do everything you can to avoid legal conflict to begin with.”
Aird advises "preconstruction meetings with the GC/CM, the architect, the third-party inspector/observer, and the skin trade subcontractors can engender cooperation and avert problems, especially if we take notes and distribute them to all attendees. Also, relationships with all those parties are a huge buffer in terms of solving problems before they become legal issues.
"Another important point is to establish and maintain a relationship with an attorney. Having immediate access to legal support from someone you trust is a huge benefit and comfort when the need arises, for all too often, such need is immediate.”
Two cases show that it is indeed possible to steer clear of legal action: Michael Nicholson, chief operating officer of Bayside Interiors, Inc. in California, says that in his 21 years with the company, he has had to file a lawsuit against only one contractor. And Michael Chambers, president of J&B Acoustical, Inc. in Ohio, said he has filed only two liens in the past five years, and he has had no other occasion to speak to counsel.
There are two avenues you can pursue before entering a courtroom: One is arbitration, the other is meditation.
Arbitration is normally done by an expert arbiter, someone who is not only impartial but who knows the industry. The arbiter’s ruling is final and binding.
Mediation is normally done by a good communicator, someone who can break ice and persuade parties (and bruised egos) to talk again. A mediator’s suggestions or advice is not binding.
Daley, Hinson and Rapaport think that arbitration is a good way to go because you are dealing with someone who knows the construction industry—all its issue, the language and just a better understanding. If you take the case to court, as Daley says, "the jury method can leave you to the whims of 12 strangers who may not understand our common business practices.”
Aird agrees as well: "I have found arbitration to be a practical and usually fair means to resolving disputes. Legal action is always a loser for both parties.”
The long and the short: If the problem is communication, find a mediator. Gregory says mediation can be helpful. If the problem is technical, find an arbiter.
Ounces and Pounds
Once you sense legal trouble, your first thought should be how best to avoid it—communication, meditation, arbitration—whatever it takes in terms of ounces.
Still, the pragmatic side of you will always keep good records and have protocol and procedures in place to stay prepared for the worst. That will limit the pounds.
Coeur d’Alene, Idaho–based Ulf Wolf writes for the construction industry as Words & Images.