Construction Manager Liability: Part one of a three-part series

July 5, 2012
By Michael Smith on July 5, 2012 10:57 AM |

Thumbnail image for iStock_000017631785XSmall.jpgWhen it comes to occupational injuries, the construction industry is among the most dangerous. According to the Bureau of Labor Statistics, in 2010 there were more fatal occupational injuries in construction than in any other private industry sector. And when a worker is injured, it sometimes leads to a lawsuit.

In most cases, the workers' compensation statue (in Indiana, Ind. Code 22-3) restricts the amount an injured worker can recover from his or her employer to the amount of workers' compensation insurance, but it does not limit the amount the worker can recover from anyone else. See Ind. Code 22-3-2-13. For example, the workers' compensation statute does not prohibit an employee of a construction subcontractor from recovering from the general contractor or a construction manager. It is not uncommon for general contractors to be sued when their subcontractor's employees are injured on the job, and there are a number of reported cases in Indiana dealing with that type of claim. However, in the recent case of Hunt Construction Group, Inc. v. Garrett, the Indiana Supreme Court had an opportunity to address the liability of a construction manager. I'll discuss that case in the next couple of postings, but first let's look more closely at the difference between a general contractor and a construction manager.

Although the roles of construction managers and general contractors are sometimes confused, they are really very different. A general contractor has the obligation to the owner of a construction project to perform the work necessary to complete the project. In most cases, of course, a general contractor does not actually do all the work but rather subcontracts at least part of the work to one or more subcontractors (for example, to an electrical subcontractor or a mechanical subcontractor). In other words, the general contractor works for the owner, and the subcontractors work for the general contractor. The owner pays the general contractor for the entire cost of the project, and the general contractor pays the subcontractors out of the amount it receives from the owner. If a subcontractor makes a mistake, the general contractor is accountable to the owner for that mistake, just as if the general contractor made the mistake itself. Naturally, managing its subcontractors is an inherent part of a general contractor's job, and the general contractor has a great deal of direct control over the subcontractors.

Sometimes, however, the owner of a project hires a construction manager to oversee the construction project and to coordinate the work of all the various contractors and subcontractors on the project. Unlike a general contractor, a construction manager is not responsible for actually building the project. The construction manager essentially acts as the owner's on-the-site representative with responsibilities such as managing the budget, the schedule, and the contract documents; sending out bid requests and receiving bid submissions; approving subcontractors when they are hired; inspecting and approving the work; and more. There may also be a general contractor with responsibility for constructing the entire project, or the owner may contract directly with companies that would otherwise be subcontractors (e.g., electrical and mechanical subcontractors) without hiring a general contractor.

Either way, the construction contractors and subcontractors do not actually work for the construction manager; instead, they work either for the general contractor or directly for the owner. The owner does not pay the entire construction price to the construction manager; the construction manager receives only a fee, and the owner pays the construction contractors and subcontractors either directly or through the general contractor, if there is one. The only authority the construction manager has to do anything related the construction is in its capacity as the owner's agent.

In Hunt Construction Group, Inc. v. Garrett ("Hunt"), an employee of a subcontractor, Baker Construction Company, was injured and sued the construction manager, Hunt, claiming that Hunt was vicariously liable for Baker's actions and that Hunt negligently breached its own duty of care for job-site safety. In the next entry, we'll see how that case came out, and in the third entry we'll look at things a construction manager can do to minimize its exposure to liability for injuries to construction workers.

Practical legal and business advice and a sound contract are the true foundation of any successful project. Construction agreements are one of our areas of practice, including Construction Management Contracts that properly account for the unique risks you may face. We enjoy working with owners, constructors, engineers, and architects. Please feel free to contact our office for an initial consultation. The cost is very reasonable, and with the experience we have in this area, we can help you lay the groundwork for whatever you do next.

Michael Smith, Attorney at Law
John Burkhardt, Legal Assistant