Construction and Procurement Law News, Q3 2017

The construction industry’s use of standard form contracts (such as the AIA family of documents) is widespread and provides parties with consistent terms that govern their respective project obligations and the allocation of risk. However, standard forms are not ordinarily tailored to specifically comply with the law of the state governing the contract. For example, risk-shifting provisions in form contracts such as pay-if-paid or pay-when-paid clauses or indemnity clauses may be unenforceable in states such as Florida that have nuanced laws on these issues. Relying on a standard form contract that has not been properly harmonized with the applicable law may inadvertently result in a party’s assuming obligations and liability in excess of what was originally contemplated when negotiating the agreement and price. The recent Indiana Supreme Court case of Ryan v. TCI Architects/Engineers, Contractors, Inc., highlights the significant (and potentially non-delegable) exposure that a party may unexpectedly assume in a standard form contract.

The long-standing rule in Indiana (like many states) is that a principal is generally not liable for the negligent acts of an independent contractor. A general contractor therefore ordinarily does not owe a duty of care to a subcontractor’s employees for safety-related issues on a project unless the contractor contractually assumes such an obligation. In Ryan, general contractor TCI Architects/ Engineers/Contractors, Inc. (“TCI”) entered into a design-build prime contract with owner Gander Mountain for renovations to Gander Mountain’s retail store in Lafayette, Indiana. TCI and Gander Mountain used the Design Build Institute of America’s (DBIA) 1998 Standard Form of Agreement Between Owner and Design-Builder (Form 530) and Standard Form of General Conditions of Contract Between Owner and Design-Builder (Form 535).

Paragraph 2.8 of Form 535, Design-Builder’s Responsibility for Project Safety, stated that TCI would “assume [] responsibility for implementing and monitoring all safety precautions and programs related to the performance of the Work” and designate a safety representative “with the necessary qualifications and experience to supervise the implementation and monitoring of all safety precautions and programs related to the Work.” TCI’s designated representative was also contractually required to conduct daily inspections and hold weekly meetings with the project participants. TCI further agreed to comply with all legal requirements relating to safety.

TCI entered into a subcontract with mechanical subcontractor Craft Mechanical (“Craft”). The TCI-Craft subcontract stated that Craft assumed the responsibility for ensuring employee safety at the project. Craft later entered into a sub-subcontract agreement with B.A. Romines Sheet Metal (“Romines”), whereby Craft assumed as to Romines the same obligations that TCI assumed as to Craft, and Romines assumed the responsibility for implementing safety standards and complying with the applicable laws regarding the same.

A Romines employee (Ryan) working at the project sustained serious bodily injuries when he fell off a ladder that was purportedly too short. Romines’ foreman disputed Ryan’s account as to the availability of other height-appropriate ladders on-site, and Ryan admittedly made no efforts to raise the issue with either TCI or Craft prior to his accident.

Ryan nevertheless asserted a negligence claim against TCI, arguing that TCI had a non-delegable duty to provide him with a safe workplace, and that his injury on-site arose directly from TCI’s breach of that duty. The trial court and Court of Appeals both found that TCI owed no such duty to Ryan. The Indiana Supreme Court, however, disagreed and reversed the Court of Appeals. While acknowledging the general rule that TCI owed no common law duty to employees of its subcontractors, the court held that “TCI assumed a duty of care related to worksite safety for all employees when it entered into a contract with Gander Mountain.” The court specifically found that Paragraph 2.8 of the standard form TCI-Gander Mountain prime contract - including the requirement to designate a safety representative and to accept sole responsibility for coordinating project safety meetings and conducting safety inspections, coupled with TCI’s control of the means, methods, and techniques of construction - evidenced a clear intent to assume “a duty of care not ordinarily imputed to a general contractor.” The court also held that TCI’s attempt to delegate its safety obligation to Craft and/or Romines in the subsequent agreement was irrelevant, because the “four corners” of the TCI-Gander Mountain contract was unambiguous as to TCI’s safety obligations and did not expressly incorporate by reference the later agreements.

While TCI owed a legal duty to Ryan, the case was ultimately remanded to the trial court so that a jury could decide whether TCI in fact breached this duty. The takeaway from Ryan is that the “contract rules all” with respect to the parties’ rights and obligations. Owners, contractors, and subcontractors should closely review and harmonize their contracts with applicable law to avoid the assumption of unknown future liability. This principle is especially important when standard form contracts are involved that have not been specifically tailored to the unique conditions and requirements of the project. Here, for example, the outcome may differ, if the general contract (TCI) qualified its Owner contract to state that it planned to subcontract with many trades and that the general contractor would delegate to each trade the primary safety obligation for its employees.