By Homer R. Peterson II, P.E., CSP

Introduction

Many construction contracts that are executed today include terms that allow termination of a company either for cause or for the convenience of the terminating entity. As owners and general contractors become increasingly concerned about construction safety, terminations for cause for alleged shortcomings in general contractors’ and subcontractors’ safety performances will likely increase in number.

Neither an owner and a terminated general contractor, nor a general contractor and a terminated subcontractor, are likely to have the same knowledge and understanding of construction safety practices. These disparities can lead to disputes when a contractor does not agree that its safety performance on a project should result in a termination of its contract for cause. If under the contract terms there is a substantial monetary difference for a termination “for cause” versus “for convenience” and the parties are unable to negotiate a termination settlement, costly litigation may be required to resolve their dispute.

CASE STUDY – Termination for Cause or for Convenience?

I consulted on an arbitration case involving the termination of a construction contractor. The key question was whether the terminating entity (TE) was justified by the terms of the contracts in removing the terminated contractor (TC) for its safety performance, or lack thereof, on a project. TE contended that the following constituted breaches of its multiple contracts with TC on the project.

1.  TC repeatedly failed to meet the safety requirements of its contracts.
2. TC personnel were the cause of multiple on-site safety incidents.
3. TC had received citations from TE for multiple near-miss incidents at the work site.
4. TC failed to implement appropriate safety procedures despite several notices from TE.

TE served TC with written notice of default. Per the contract terms, TC timely proposed steps to cure the breaches alleged by TE. TC’s curative steps included, but were not limited to:

1. TC would improve its written safety program.
2. TC would provide additional documented safety training for all of TC’s employees including field personnel, supervision, safety staff, and management.
3. TC would implement a new zero-tolerance policy that included future terminations of any of TC’s employees committing violations related to four types of safety hazards.
4. TC would conduct documented investigations, determine root causes, and implement corrective actions for all of TC’s future accidents and incidents, including near misses, at the project.
5. TC would use a third-party safety consultant for safety support and additional site safety audits.

TE rejected TC’s proposed cure for the contended breaches and removed TC from the project for cause related to its safety performance with a proviso that the removal would convert to a termination for convenience in the event that the termination for cause was disallowed as a result of dispute resolution.

TC filed for dispute resolution via arbitration as required by its contracts. The Arbitral Tribunal ruled that the cure proposed by TC was adequately responsive to the breaches contended by TE, that TC had been terminated for TE’s convenience rather than for cause, and awarded monetary compensation to TC.

Construction Industry Standards for Terminations “for Cause” Related to Safety

There are no construction industry standards or OSHA regulations regarding termination of a contractor due to the contractor’s safety record on a project. In the absence of such standards for termination of a contractor due to the contractor’s safety record, one must look to the construction contract(s) to decide the appropriateness of termination for cause.

There is no organization that serves as a clearing house or depository for information related to contractor terminations. Knowledge of the reasons for contractors’ terminations and the specific contract language governing such terminations is neither distributed nor widely known in the construction industry. Confidentiality agreements are often used to protect the terms of settlements of termination disputes from public scrutiny. Although it may be possible to determine contract language governing terminations through case-by-case reviews of court records for those cases that are adjudicated in court, complete contracts and transcripts of witness testimony and exhibits for those cases are not readily available to the construction industry. Therefore, comparisons of a contractor’s termination to similar terminations of peers in the contractor’s trade(s) can be problematic. When comparisons to other terminations is not feasible, construction safety experts may be needed to evaluate the contractor’s safety program and safety practices and then to compare those programs and practices to construction industry safety standards.

Construction Industry Safety Standards

The safety standards applicable to the construction industry include mandatory construction safety regulations promulgated by the Occupational Safety and Health Administration (OSHA), voluntary guidance provided by OSHA, voluntary guidance provided by the American National Standards Institute (ANSI), and voluntary guidance provided by industry trade associations such as the Associated General Contractors of America (AGC).

1. OSHA’s regulations governing construction safety are found in the federal register in 29CFR§1926 “Safety & health regulations for construction”.
2. OSHA provides safety guidance to construction contractors in its publication OSHA 3885 titled “Recommended Practices for Safety & Health Programs in Construction” published in 2016.
3. ANSI provides safety guidance to construction contractors in its consensus standard A10.38-2013 titled “Basic Elements of an Employer’s Program to Provide a Safe and Healthful Work Environment – American National Standard for Construction and Demolition Operations”.
4. AGC provides safety guidance to construction contractors in its publication titled “Basic Company Safety Program Development Guide”.

OSHA Construction Safety Regulations

OSHA promulgated its safety regulations under the authority granted to the agency by the Occupational Safety and Health Act of 1970 (the OSH Act) which imposed duties on both employers and their employees in its Section 5 (Duties). OSHA’s construction safety regulations do not have specific requirements concerning the contents of construction contractors’ safety programs, nor do they specify the means and methods to be used by construction contractors in providing safety training to their employees.

Regarding safety training, OSHA construction regulation 29CFR§1926.21(b)(2) requires: “The employer shall instruct each employee in the recognition and avoidance of unsafe conditions and the regulations applicable to his work environment to control or eliminate any hazards or other exposure to illness or injury.” In using the phrase “recognition and avoidance of unsafe conditions”, OSHA recognizes that unsafe conditions will be found on construction sites. Similarly, in using the phrase “to control or eliminate any hazards” in the regulation, OSHA recognizes that not every potential hazard, or unsafe condition, can or will be eliminated from construction sites. Whenever unsafe conditions are present on construction sites, OSHA requires that they be controlled through appropriate employee training.

Employee training is only effective when employees apply their training to the performance of their work. For this reason, Section 5 (Duties) of the OSH Act imposed this duty on employees: “Each employee shall comply with occupational safety and health standards and all rules, regulations, and orders issued pursuant to this Act which are applicable to his own actions and conduct.” When an employee has been provided with appropriate hazards training but fails to use that training to avoid the hazards, that employee has failed to comply with Section 5 of the OSH Act and has engaged in “unpreventable employee conduct”. Instances of unpreventable employee conduct can be used by contractors as affirmative defenses against citations for violations of OSHA regulations and are therefore worthy of consideration as mitigating factors in a termination for cause related to safety performance.

OSHA Construction Safety Guidance

According to OSHA’s safety guidance, the core elements of the recommended practices for safety and health programs in construction include management leadership, worker participation, hazard identification and assessment, hazard prevention and control, education and training, program evaluation and improvement, and coordination for employers on multi-employer worksites.

ANSI Guidance for Construction Employers’ Safety Programs

ANSI A10.38 provides guidance concerning the key program elements of construction employers’ safety programs including employer commitment and responsibility, requirements for competent persons, pre-task safety and health analysis, new-hire orientation, training, employee participation, inspections, incidence investigation and recording, substance abuse policy, disciplinary procedures, and emergency response planning.

AGC Guidance for Contractors’ Safety Programs

AGC provides guidance in its construction safety program development guide that contractors should provide “tools of the trade” such as employee safety training, new employee orientation, on-site safety inspections, accident investigations and incident reporting, disciplinary procedures for safety violations, and accurate recordkeeping for occupational injuries and illnesses. AGC also recommends a drug and alcohol program as an ancillary program.

Determining Whether a Construction Contractor Was Terminated for Cause or for Convenience

Triers of fact face challenges when determining whether a contractor was terminated for cause related to its safety performance or for the convenience of the terminating entity. It is noted here that termination disputes often cannot be resolved for years after the termination; and that triers of fact, whether judges, juries, or arbitrators, will likely consider the following in making such a determination.

1. Whether the occupational health and safety management system (OHSMS) implemented by the terminated contractor was appropriate for the scope and complexity of the contractor’s work (OSHA considers an employer’s size and resources to be a factor when determining penalties related to enforcement of OSHA’s safety regulations and most construction contractors consider their company’s size and resources, and also the size and complexity of their projects, when determining the safety measures to be implemented for their work.)
2. Whether the terminated contractor created, executed, and monitored a safety program that was appropriate for the work that the contractor was to perform under the terms of its contract(s)
3. Whether the terminated contractor executed and monitored its OHSMS and managed its safety program in a way that a reasonable and prudent construction contractor would have executed and monitored its OHSMS and managed its safety program on a similar project

Recommendations

Parties disputing whether termination for cause related to safety performance is justified under the terms of a contract should consider the following prior to initiating litigation.

1. Litigation costs that will be incurred in pursuing resolution of each party’s claims
2. The definitions of “for cause” and “for convenience” in the contract
3. The articulated reason or cause for the termination of the contract
4. Applicable construction industry safety standards
5. Adequacy of the contractor’s safety policies and safety program
6. Adequacy of the contractor’s training practices and its documentation of employee training
7. Whether the contractor’s safety performance prior to its termination met or exceeded the requirements of its contracts, complied with industry safety regulations, conformed to the applicable industry safety standards, and/or was in conformance with industry safety guidance
8. Based on statistics such as experience modification rate (EMR), total recordable incidence rate (TRIR), and lost time incident rate (LTIR); whether the contractor’s safety performance under the contract prior to termination compares favorably with the safety performances of peers in the contractor’s trade(s)
9. Whether a significant number of the contractor’s incidents related to the termination for cause involved unpreventable employee conduct at the project
10. Whether there was a timely proposal of steps to cure the alleged breaches.

Conclusion

Construction contract disputes concerning terminations can be time-consuming and expensive. Parties to such disputes should make good faith efforts to settle their grievances through negotiation and/or mediation prior to pursuing arbitration or litigation.

Attention to due diligence during contract negotiations, increased safety planning during project planning stages, and increased worker safety training may help companies avoid costly litigation of disputes related to the question of whether a contractor has been terminated “for convenience” or “for cause” related to its safety performance.

About the Author – Homer R. Peterson II, P.E., CSP

Homer R. Peterson II, P.E., CSP serves as President of Peterson Construction Consulting, Inc. He provides consulting services, including expert witness services, to attorneys, insurance carriers, and companies engaged in both construction and general industry. He provides arbitration services through the American Arbitration Association (AAA). Throughout a 40-year career involving construction, steel erection, safety, and fall protection on more than 350 projects located in 21 U.S. states and territories, he has observed the policies, programs, procedures, standard practices, and best practices of more than 80 general contractors and numerous specialty contractors.

More information is available at www.homerpeterson.com.