#2 - Contractor Liability
More than likely, wherever you may be based, some sort of contractor registration or even certification is necessary. Investigate with your local builders association, state department of commerce or other state government offices.
Before you enter into a construction contract, make sure you understand how responsibilities, risks, and costs are to be allocated between the owner and all others involved in the project. Addressing liability within the contract can reduce your exposure to third-party claims.
The following information is an overview of construction contract issues, not a comprehensive discussion of contractual protection. For more guidance, you should consult your attorney. Two publications containing helpful information regarding construction contracts are available from the National Association of Home Builders (NAHB) at (800) 223-2665:
- Contracts and Liability - provides detailed information about many of the different aspects involved with contracts
- Construction Forms and Contracts - provides various forms you can copy from the book or load directly into your computer from the free disk enclosed
Compliance with environmental regulations helps protect you from liability and financial hardship. Your contracts with subcontractors should require their compliance as well. All subcontractors should be required to:
- Comply with all government requirements.
- Protect the construction site and monitor activities to prevent a third-party from creating a hazardous incident or causing environmental contamination.
- Identify hazardous materials used or stored at the project site and ensure proper labeling, storage, handling, and disposal.
Known or Suspected Hazardous Substances
Some environmental contaminants were prevalent in construction materials prior to the 1980s (such as asbestos in floor tile, insulation, and shingles). When remodeling, your contract should address the need to test for known or suspected contaminants and should specify who is responsible for hiring a qualified person to conduct such tests.
Federal and state environmental regulations require proper management of hazardous wastes generated at your site. You are responsible for hazardous waste management, removal, and, if transferred off-site, assurance that the waste is delivered to its final destination.
Unexpected Site Conditions or Hazardous Substances
Your contract should clarify your responsibilities and obligations for unexpected site conditions or the discovery of hazardous materials. The owner's disclaimer of liability clause should be modified to state that the contractor has no responsibility for existing site conditions or materials located at the site such as toxic, hazardous, or other dangerous substances. If you encounter an unknown hazardous substance or condition, immediately notify the owner.
If you must absorb the risk of unexpected conditions on the site, negotiate a provision that allows you access to the site and time to evaluate that risk before beginning construction. Provide for a contract allowance to cover appropriate inspections and testing. The contract should give you the option to terminate the contract if conditions are not satisfactory.
Superfund and CECRA Sites
Congress created the federal Superfund program in 1980 under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) to address the cleanup of the nation's most contaminated sites. As a residential building contractor, you are unlikely to work on a project that is located on a Superfund or CECRA site (typical Superfund or CECRA sites include old landfills and dumps, old mining and smelting facilities, barrel sites, or places where chemicals or solvents were used such as autobody shops, drycleaning businesses, etc.).
- Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)
- Comprehensive Environmental Cleanup and Responsibility Act (CECRA)
- Superfund Amendment Reauthorization Act (SARA) Title 3
Utilities Underground Location Center
Call the "North American One Call Referral System" at (888) 258-0808 before you dig anywhere on your site. This national hotline is also known as the "Call Before You Dig" or "One-Call" line. Once referred to your local center, observe the following recommendations. Please verify the exact services of your local center!
- Call to give advance notice at least 2 (but not more than 10) business days prior to digging
- Be prepared to describe the type of work to be done and to pinpoint the exact location of your dig site
- Your local center should notify subscribing utilities and underground facility owners for you
- Utility representatives will come to your work site and mark where buried
facilities are located according to the following color code:
Red - Electric
Yellow - Gas/Oil/Steam
Blue - Water
Green - Sewer
Orange - Communications/Cable TV
Pink - Temporary Survey Markings
White - Proposed Excavation
- You must stay at least 2 feet away from the marks (they do not mean "dig here")
- If you do not notify your local "call before you dig center" (and fail to obtain information about an underground facility location) prior to digging and you damage an underground facility, you are liable to the owner of the facility for the entire cost of the repair.
Most contractors rely on general liability coverage because of the difficulty in obtaining pollution insurance. General liability insurance may be purchased alone (mono-line) or included in a commercial package policy (contractors' equipment, property, general liability, auto, etc.). Although liability insurance is usually inexpensive, it is some of the most important coverage you can buy. Because any type of liability insurance is extremely complicated, your attorney should review the policy to determine exactly what your coverage is.
Workers' compensation insurance may be available through your state or through a private insurance carrier. Private carriers may select those individuals or businesses they wish to insure and so may offer more competitive rates.
- Appropriate legal counsel
- Insurance representatives
- National Association of Home Builders (NAHB)
1201 15th St. NW
Washington, DC 20005
- Local or State Contractors Association
- North American One-Call Referral Center