Contractors: The G-Man Cometh, Are You Ready?

Recent enforcement actions demonstrate how important a strong compliance program is for companies in the construction industry.

Contractors are accustomed to taking a lot of risks. Many of those risks are obvious. Consider the contractor who agrees to build a pipeline at a fixed price per foot. If his crews can't excavate, lay, and backfill as fast as his estimators thought they could, the contractor is most likely on the hook for the increased cost. Similarly, a contractor who agrees to fixed prices for finish work that won't be completed until the end of the job typically owns the risk that the costs for the finish materials will rise before the work is done. Most contractors understand these types of performance risks are part of the bargain and can be controlled by good management and making sound deals. Contractors who successfully manage performance risks are rewarded with profits. However, those profits can quickly be depleted if contractors fail to manage other, less obvious risks.

Among the less obvious is the risk of non-compliance with laws and regulations that govern contractors and their activities. Safety, for example, is heavily regulated across the country. The purpose of the regulations is to protect workers. Of course, no reputable contractor sets out to create an unsafe job site. Safety can, however, take a back seat in the daily grind of a construction project. Contractors too often succumb to the temptation to postpone needed training when a project is behind schedule or let untrained operators run equipment when a crew is a man short. The consequences of those decisions may seem unlikely or even trivial; but over time, that type of short-term, high-risk management can have serious consequences when they run contrary to regulations or the contractor's own safety policy.

Recent examples of contractors who have run afoul of their safety obligations offer valuable lessons on the consequences of noncompliance. For example, a contractor who allegedly failed to comply with trench excavation safety requirements was recently fined more than $500,000 by OSHA. In a February 2016 case, a roofing contractor received a citation with an initial penalty of more than $100,000$70,000 of which related to the employer allegedly failing to provide adequate fall protection. Too often, seemingly minor infractions of regulationslike allowing workers to work in front of trench boxes or get on elevated platforms without being properly tied...