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During the past decade, background screening has become a necessary way for companies to minimize liability, protect consumers and safeguard their brand. For construction management firms, the use of subcontractors and other contracted workers presents a special challenge. Even though they aren’t direct employees, contracted individuals can become the "public face" of a construction management company.

Recent litigation shows construction managers ultimately are liable for individuals performing work on commercial, industrial and residential projects, regardless of their employer. This potential for liability puts additional pressure on construction management companies to ensure workers are fully screened and adequately insured prior to being sent out into the field. If contractors or their subcontractors fail to provide adequate workers’ compensation coverage, the prime contractor is subject to penalties in the event of an audit. Without liability insurance, the contractor may be liable if a worker is injured on the job.
Due to the seasonality of construction, the industry has long relied on contracted workers. However, customers are becoming more concerned with safety and the potential for violent crimes, leading to questions about every contractor that enters a customer’s home or works onsite in a commercial or industrial environment.

Recognizing this level of customer concern and its potential impact on business, an increasing number of contractors are implementing screening programs to avoid hiring workers who may be convicted felons or registered sex offenders—whether they are direct employees or work for their subcontractors. Ignoring these risks could expose contractors to litigation related to negligent hiring.

In the past, few businesses performed background screening, even on their own employees, because they did not believe the benefits outweighed the costs. However, that’s changing as more courts are hearing negligent hiring lawsuits related to both employees and contracted workers.

Ignoring the risks presented by bad hiring decisions can be shortsighted given the tangible and intangible costs related to litigation, unfavorable verdicts, settlements, investigation and research. Market research confirms that a single, highly publicized incident can result in millions of dollars in lost brand equity and damage to a company’s reputation.

A safe contracting program that includes management of all necessary insurance, license and compliance documentation—as well as comprehensive screenings that cover a criminal background check, nine-panel drug screen, motor record review and adherence to notification requirements—can mitigate these risks.

Performing a cost/benefit comparison is often the first step in developing and implementing a safe contracting program. A basic analysis entails subtracting the costs of only the background screening and legal expenses from a negative judgment for a negligent hiring lawsuit.

In the past 10 years, numerous lawsuits have ensued due to improper background screening. According to Human Resources Management, the average settlement of a negligent hiring lawsuit is nearly $1 million. Employers that go to court for negligent hiring lose the case 79 percent of the time. The highest award in a negligent hiring case was $26.5 million.

Whether $1 million or $26.5 million, the cost of a judgment in a negligent hiring lawsuit far outweighs any fees contractors or their subcontractors would invest to support a comprehensive safe contracting program and related screening processes. The following case demonstrates the benefits of screening when compared to associated costs. Costs were calculated on the basis of a company paying $20 to $100 for each worker screened, which represents a range from basic to comprehensive screening. Legal fees were estimated at $200,000 (an industry average).

In Tallahassee Furniture Co., Inc. v. Harrison, a construction worker and delivery man attacked a woman a month after delivering a product to her home, resulting in partial paralysis. If the company had conducted a background screen, it would have learned the worker had juvenile convictions for armed robbery and burglary, adult records of arrest for assault and battery, and voluntary hospitalization for paranoid schizophrenia and drug use. The jury returned a verdict with $1.9 million in compensatory damages and $600,000 in punitive damages for a total of $2.5 million for the company’s negligent hiring. In contrast, the cost of background screening the firm’s employees would have cost only $480 to $2,400. Coupled with attorney and court fees, the company could have saved $2,297,600 to $2,499,520 by conducting background screenings.

Clearly the employee screening and compliance management components of a safe contracting program more than pay for themselves, but contractors also must consider the safety of commercial and residential customers, their responsibility to provide a safe workplace and their desire to maintain their brand’s integrity. From defensive and proactive points of view, successful contractors must make safe contracting part of their business planning for the future.
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