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Worker Liability Issue


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By Martha in Arlington, TX on 7/4/2009


Can anyone discuss the potential liabilities associated with being the owner of a lot with a house being built on it?

I have been very clear with any potential general contractors that I want to make sure they (as well as any subcontractors) have general liability insurance, workers' comp and that all workers are employees (W-2's, NOT 1099 workers).  Several of the builders think that I am nuts because I want to potentially audit their paperwork for anyone working on our house.  I have been an owner of a manufacturing business for 25 years and have always played by the rules... I-9's for all employees, Social Security taxes paid, workers' comp coverage, etc.  AND I have been audited by some of our major clients.  What's up with this?  Do most people in the homebuilding industry cheat and that is why they are afraid to let me audit?  I clearly remember that Walmart got busted big time because they turned a blind eye to the subcontractors that were cleaning their stores... they more than likely knew that they were NOT working under legal circumstances.

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By Grant in Blacksburg, VA on 7/19/2009


Definitely a hot button issue...  Lots of the contractors in my area hire illegal laborers or else subs with illegal laborers.  How this affects an O-B is of interest to any and all of us.  Due diligence is one thing, but I don't see any of the contractors in this area allowing an "individual" with a one-off project (as opposed to a supply chain partner or long-term business affiliation) access to audit their records.  I'm not a lawyer, but I think that would be overkill to show due diligence as an O-B anyway. 

To protect yourself in the way you seem to desire, it would seem prudent to have the contractor sign a liability waiver and legally certify the hiring and insurance practices of their company.  Is such a certification sufficient to protect you from pass-through liability? I guess that is a question for an attorney.  In my non-legal opinion, you'd likely be taking on more liability if you choose to take on the responsibility to audit and then miss something.  If the liability concerns you, I'd suggest talking to a knowledgeable insurance agent about coverage for your project, and ask the insurance company (with their attorneys) to provide you with contract language to provide to your contractor to limit your liability and to lower the insurance/bond costs.

As should be obvious, the GC's that so frequently "cheat" in their hiring and insurance practices have apparently come to the conclusion that the costs of doing it properly are much higher than the risks from cheating.  Ultimately, whether the risks are covered in the cost of the insurance policy or in the contractor's project margins, the price is reflected in the construction costs paid by the homeowner.  The same costs must some how/some way be born by the O-B.  You can gamble like so many GCs do to lower your "expected" construction costs, but the GC has the advantage of spreading their risk across multiple projects with higher margins to hedge their bets.  Alternatively, you can properly obey all laws and buy an insurance policy (or attempt to ENSURE your contractor and all of his employees and subcontractors are properly covered) in order to cover your risks

If you ever plan to run for or be appointed to government office, you may wish to be extra sure that you have done all proper due diligence.  How many newspaper reports have you read about some governor or senator that has directly or indirectly hired illegal workers and suffered the fallout therefrom?

Show a good faith effort at due dilligence, but keep it reasonable enough that contractors will be willing to work for you.  And good luck finding one that NEVER skirts the rules.  There are some out there (seriously my own company is one of them), but you will likely never know until after the fact if your contractors have actually cheated or not.  As I said, I don't think any contractor will let you, as an O-B, audit them.


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By Martha in Arlington, TX on 7/20/2009


Great answer.  I like the suggestion about having the contractor sign a document saying they (and/or) their subs are playing by the rules.  I have to tell you that I have had luck with at least one builder.  He did not actually understand that he was doing it wrong.  AND I still don't get why a GC does not want to play by the rules.  It is just not that hard to have employees complete an I-9 and/or to verify with the Social Security Administration that the SS#, name and address all match up.  Now is the time for all contractors to get on board.  There are a lot of people wanting to work and it is the right thing to do.

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