This article was published in the September 2016 issue of AGC Law in Brief (Volume 2, Issue 5), Practical Construction Law & Risk Issues. It is reprinted here with permission.
In the past year, federal, state and local authorities have dramatically changed how they investigate and prosecute general contractors and subcontractors for safety violations and work site injuries. Traditionally, in the event of a workplace injury or safety violation, legal consequences for contractors or subcontractors were limited to civil claims for damages. If criminal charges were brought, they were typically misdemeanors. However, recent state and federal initiatives and criminal prosecutions against individuals and companies signify that future safety violations, particularly those involving fraud, may trigger unprecedentedly harsh criminal penalties for construction firms and their managers.
According to the U.S. Department of Commerce, nationwide spending on construction projects has generally been increasing overall since mid-2012. During the first six months of 2016, construction spending reached $539.8 billion, at 6.2 percent increase from the same period for 2015. Construction project growth has become more extreme in certain regional markets. For example, in 2011, New York City experienced 19 million square feet of new construction; by 2015, that number increased to 92 million.
Unfortunately, during this period of growth in the construction industry, work-related fatalities have also increased. In 2014, there were 4,821 fatal work injuries overall — the first year since 2010 that saw an increase in the national fatal injury rate. Within the private construction industry, fatal work injuries in 2014 increased by 9 percent — 899 total — marking the largest number of fatal work injuries for private construction since 2008. In addition to the human cost, the spike in serious construction accidents has prompted greater government scrutiny of workplace safety. The New York City Department of Buildings, for instance, issued more than 4,500 stop-work orders for safety violations in the first six months of 2016, compared to 2,700 for the entirety of 2012.
While a corresponding increase in construction projects, worker injuries and stop-work orders may seem intuitive, what was difficult to predict was that state and federal authorities would respond by launching initiatives designed to bring criminal charges against industry members for serious safety violations. The first salvo in the criminalization of safety violations came in August 2015, when the Manhattan District Attorney announced the formation of a citywide task force to investigate fraud and misconduct in the construction industry. In addition to the District Attorney, the task force includes the New York City Department of Investigation, the Port Authority of New York and New Jersey Office of the Inspector General, the Metropolitan Transportation Authority Office of the Inspector General, and the Business Integrity Commission for the City of New York. The task force meets monthly to cooperate in investigations of not only safety violations, but also “fraud, bribery, extortion, money laundering, bid rigging, [and] larceny.”
The New York trend to criminalization of safety violations is not unique. Similar initiatives are arising at the federal and state levels throughout the United States. In December 2015, the U.S. Department of Labor (DOL) and the U.S. Department of Justice (DOJ) announced a joint initiative “to provide for coordination of matters pertaining to worker safety that could lead to criminal prosecution by the DOJ.” Under the program, the DOL operates “points of contact” with solicitors at various federal agencies, including the Occupational Safety and Health Administration (OSHA), the Mine Safety and Health Division, and the Wage and Hour Division, in order to coordinate criminal enforcement referrals to the DOJ. Should a recommendation be made, the DOL will support the DOJ’s criminal investigation and/or prosecution through data gathering and information sharing. Unlike the New York City task force, the DOL-DOJ program operates nationally.
With the DOL-DOJ initiative and New York City task force in place, the legal landscape of the construction industry will now feature a stronger investigation presence, one that is specifically designed to root out and criminally punish fraud and safety violations. While the two programs are fairly new, several recent charges brought by state and federal authorities provide insight into the future of criminal prosecution within construction industry.
On December 9, 2015, just days before the DOJ and DOL announced their cooperative program, the DOJ entered into a plea agreement with James McCullagh, owner of a Pennsylvania-based roofing company, involving four counts of making false statements, one count of obstruction of justice, and one count of willfully violating an OSHA regulation. According to the indictment, McCullagh failed to provide an employee with any form of fall protection in connection with roof repair work, resulting in the employee falling to his death. As the incident was being investigated, McCullagh personally made false statements, and encouraged other employees to make false statements, to the OSHA investigating officer concerning the fall protection equipment made available to his employees. In March 2016, McCullagh was sentenced to 10 months in prison and one year of supervised release.
That same month, the manager of Avanti Building Consultants, Richard Marini, was sentenced to one to three years in jail and ordered to pay $610,000 in restitution for fraud and safety violation charges brought by the Manhattan District Attorney and the New York City Department of Investigation. A report issued by the Department of Investigation claimed Marini recruited individuals from Craigslist and other websites to pose as licensed site safety managers to conduct inspections for building projects. The fraud, which spanned from 2012 to 2014, was uncovered when a New York City Department of Buildings officer discovered that one of the faux inspectors signed a log using the name of a recently deceased safety manager. Both Marini and Avanti Building Consultants were found guilty of second-degree larceny.1
What began as a localized task force to address safety violations in the New York City construction market has quickly evolved into a nationwide initiative by federal authorities to bring criminal charges for safety violations. While the full impact of the recent state and federal initiatives to bring criminal charges against construction firms and individuals who mix fraud and safety violations has not yet been felt, it is clear from recent investigations and plea agreements that the industry will be held to a higher standard of safety and candor by government authorities going forward. As these programs develop and more emerge, contractors and subcontractors operating in the United States must respond by not only ensuring safety regulations are rigorously followed, but also by fully cooperating with any investigation handled by federal, state or local authorities. Under the new norm, the consequences for failing to do so could be years in prison.
1 A separate company, NYCB Engineering Group, was also indicted for its part in the Avanti Building Consultants scheme. NYCB, through its vice president, Kishowar Pervez, subcontracted with Avanti to offer its client’ comprehensive site safety plans, while also hiring Pervez’s personal friends to impersonate safety inspectors. Pervez pleaded guilty and was sentenced to six months’ house arrest in June 2016.
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.