Construction Contracting
Question
Term Paper/Homework Assignment:
Ten (10) pages of content or longer-term paper with proper accreditation addressing:
A New York developer hires a construction manager from New Jersey, who is unlicensed in the State of Florida to oversee the repairs at a South Beach Hotel. The developer also retains design professionals from New York to redesign the interior of the hotel including electric, plumbing, HVAC and internal structural walls. The design professionals do not submit their designs to Miami Beach Building Officials however the designs are furnished to the contractors and subcontractors performing work on the project who are then told to proceed with the work.
Moreover, the contractors and subcontractors are advised by the construction manager that he will handle the permits. Based on this information, the contractors and subcontractors begin work.
What are the legal and ethical concerns on the part of contractors and subcontractors performing the work and what should the subcontractors and contractors do about them?
As an aside, the structure is a historical building.


Solution
Construction Contracting
In this scenario, the
developer may be held liable for the contractors’ negligent acts or omissions
if it can be shown that the developer had the right to control the manner and
means of their performance. The design professionals have a statutory duty to
exercise due care in their work product, and they may be liable to the developer
and/or owner. However, the design professionals were only engaged to provide
blueprints and did not supervise any part of the construction project.
Accordingly, they are likely not responsible for any of the damages associated
with this project. The contractor would be in a stronger position than the
subcontractor since he does have a contract with the owner. The subcontractors
are also in a tough position because they are not parties to any written
agreement with the owner. They may have an implied-in-fact contract with the
owner based on their course of conduct, but this would require more facts to
determine. It is unlikely that a valid implied-in-fact contract was formed in
this case because the owner to the subcontractors made no payment. Generally
speaking, though, under Florida law, both contractors and subcontractors can
recover damages based on quasi-contract (quantum meruit) theories or unjust
enrichment against an owner who knowingly accepts substantial completion of the
project.
Liability and Risk Exposures in Construction
Contracting
If not licensed and
insured, as a contractor, that is a risk of severe monetary fines, penalties,
and jail time. Regardless of the reason you may think that licensing and
insurance are not important, it will impact your business if you are not
properly covered. When working on projects under contract, a party taking on
any construction project should understand their risk exposures. The level of
exposure varies from project to project, depending on the scope of work
contracted. The kind of exposure can range from personal injury to property
damage liability. Other exposures could be the potential for violations of laws
and regulations or operating without proper licenses and/or insurance coverage.
When a general contractor enters into a new contract, his or her first step
should be to review the contract documents to determine the scope of work
required for the particular project. Suppose there is any discrepancy about
what is actually being contracted for, or the contractor has concerns about how
the work will proceed. In that case, those should be addressed before starting
work on the project. A good rule of thumb is that if there is any question
about how to proceed with a particular task, it is best to seek clarification
before starting work rather than assuming what should be done. The design
professionals would be violating Chapter 471 by failing to submit their designs
to Miami Beach Building Officials. The developer would be subject to a fine of
up to $5,000 and an additional fine not to exceed $1,000 per day that the
design professionals perform the unlicensed activity (Shohet, Igal and Shay, 570).
Some legal and Ethical issues include:
(1)
The contractor performing work without a license.
Several issues need to
be addressed regarding this situation. The first is, did this construction
manager disclose to the contractor and subcontractors that he was not properly
licensed in New York? If he did not, he could be subject to sanctions for his
failure to disclose this information. In addition, if he did not disclose it,
then it is possible that he could be found liable for breach of contract with
any party with whom he contracted within New York. The legal and ethical
concerns on the part of contractors and subcontractors performing the work are
that they must have a Florida contractor’s license to perform any construction
activity, including demolition, in Florida. They should not proceed with the
work until properly licensed under Chapter 489, Florida Statutes (West, Nicola, Gransberg, and
James, 35). Contractors and subcontractors should not be performing work
without a permit. In performing work without a permit, they could be subject to
fines, litigation or potential suspension of their license by the Department of
Business and Professional Regulation to violate Florida Statute 489.103(4).
Additionally, if their work is not performed following the building code, the
contractor or subcontractor could be subject to possible fines litigation from
the owner and/or from an injured party in connection with the performance of
this work.
Moreover, there is a specific law relating to
unlicensed activity in Florida. Pursuant to Florida Statute 489.127:
(1) A person may not construct or alter any
building or structure within this state or cause any building or structure
within this state to be constructed or altered:
(a) For which the applicable local government
building code requires a permit; and
(b) Unless such person has first obtained a
certificate, registration, or license pursuant to this part or unless such
person meets one of the following criteria:
1. Is employed by such person as an employee
whose duties are confined within the regulatory
(2)
The construction manager overseeing work without a license.
The Contractors and
subcontractors could be fined under Section 161.094 of the Florida Statutes for
not pulling permits for the work performed on the project and for doing so
without a license (or without hiring a licensed contractor). Section 161.094 of
the Florida Statutes provides that any person who performs contracting without
a license is liable to pay to the Board an administrative fine equal to $1,000
per violation plus three times the amount paid or contracted to be paid by any
person as compensation for performing such contracting services (Gordon, and Christopher, 100).
The contracting services shall include but are not limited to any services in
which a certificate of competency is required pursuant to Chapter 489 of the
Florida statutes unless specifically exempted by law. In addition to such civil
penalties, any unlicensed person who works on a project must also reimburse all
reasonable attorney’s fees and costs incurred by all persons who have suffered
injuries or damages due to such unlicensed activity.
(3)
The design professionals are not submitting their designs to Miami Beach
Building Officials.
As design
professionals, they must submit their plans to the local building authority for
approval prior to construction and obtain the required permits before
construction begins. If they fail to do so, they can be subject to penalties
under Florida Statute 489.129(1)(a), which states that if a person performs any
business or work for which a license is required under this chapter without
having a license, he or she commits a misdemeanor of the first degree.
Architects also have an ethical obligation under Chapter 61G15-23.001(3),
Florida Administrative Code, to ensure that all plans submitted comply with the
policy and regulations. First, to address this issue, it is good to understand
the requirements for submitting a building permit application pursuant to the
Florida Building Code. The Florida Building Code is found in Chapter 553,
Florida Statutes. According to section 553.821 of the Florida Statutes, a
building permit application cannot be approved unless submitted by the owner,
lessee, tenant, or design professional. In this case, we assume that the New
York design professionals who designed the hotel’s interior are not licensed in
Florida; therefore, they cannot submit a building permit application. However,
if they did submit a building permit application without being licensed as a design
professional in Florida, they would be subject to criminal charges and fines
pursuant to section 553.73(2), Florida Statutes. The construction manager would
also be subject to criminal charges pursuant to section 553.73(3), Florida
Statutes if he caused any work without first obtaining a valid building permit
from Miami Beach Building Officials. This provision requires proof that the
contractor or subcontractor relied on the construction manager’s statement that
he would handle obtaining the required permits from Miami Beach Building
Officials. The design professionals would face criminal charges for violating
Florida Statute 489.127 (1) and Florida law. Suppose a design professional
submits plans to a municipality, county, or other governmental entity that
purportedly show sound construction practices, but which are defective and
violate the building codes. In that case, the design professional can be
charged with a third-degree felony. This is a very serious crime that could put
design professionals in jail for five years.
(4)
The structure is a historical building, which could pose additional problems if
renovations are made without permits.
A historical building
is an asset to the community. It is a mark of the City’s cultural heritage, and
as such, it must be preserved by any means. In this case, the building was a
historical site renovated by parties who had no right to do so. The fact that
the design professionals did not submit their designs to Miami Beach Building
Officials would have violated state laws regarding historical buildings. The
design professionals should have known that a historical site requires more
than just architectural planning. Any alterations to such a building must go
through state approval and must not alter the overall architecture of the said
building. This would usually include the construction of additional structures
on or around the site and any alterations made to the interior or exterior of
any buildings on or around the site. The contractors and subcontractors were under
no obligation to follow this rule; however, they were not permitted to engage
in any unauthorized structure planning or construction. The contractor and
subcontractors would also be charged with Unlicensed Activity pursuant to
Chapter 489, Florida Statutes (not less than a first-degree misdemeanor) and
would also be subject to civil penalties of up to $5,000 per violation (not
less than $10,000). Additionally, because the structure is a historic building,
it has been determined by local government officials as having historical
importance or value in relation to its culture, architecture, or development
and should therefore be preserved for future generations. If renovations are
made without permits could result in additional charges for failing to comply
with historic preservation laws, making the parties involved face criminal
charges.
Mitigation of the Situation
An ethical duty to the
client is one of the most important duties that a contractor typically has. The
ethical issues that arise from this scenario are numerous and varied depending
on who you ask. The subcontractors and contractors should be aware that working
in a historical building requires special attention to detail and care. They
should also be aware of the legal requirements and regulations required to work
in a historical building. If the construction manager has informed them that he
will handle all of the permits, then it would be reasonable to assume that he
will file for all necessary documentation required by law. However, it might be
wise to ask him directly about which permits have been filed for so that no one’s
legal and ethical duties are compromised. The contractors and subcontractors do
not get the necessary permits to perform the work that has been contracted to
them. The answer to what should be done about this by the contractors and
subcontractors depends on several factors. First, if the structure is a
historical building, then other legal and ethical concerns should be brought
up. If it is a historical site, some regulations may apply to it regarding
permits and approvals from the historical society and possibly even city
officials (Bilbo, 45).
The contractor’s and subcontractor’s legal and ethical responsibilities would
be to obtain any necessary permits from all regulatory agencies that may have
jurisdiction over the site. Additionally, if the work being performed would
cause structural damage to the building or any damage, then there are further
legal issues that need to be addressed. In this case, it would depend on
whether or not the contractor or subcontractor knew that they were working on a
historical site and if they knew this before beginning work. If they knew this,
they should have obtained the necessary permits and approvals before beginning
work. If they did not know this before beginning work, they might have only
committed a technical violation by not obtaining all of their permits.
Secondly, the
subcontractors and contractors should be concerned with their own legal and
ethical concerns in this case. Whether or not the construction manager will
handle permits is irrelevant to whether or not the contractor or subcontractor
performs lawful work. If the construction manager fails to apply for permits or
fails to obtain approval from the Miami Beach Building Officials before
beginning construction, it does not mean that the contractor or subcontractor
can go ahead with their work; doing so would be unlawful. The only way that
this concern could be alleviated is if everyone involved were to wait until all
necessary permits had been obtained from Miami Beach Building Officials and
work then began under those regulations. They should not proceed with any work
until they are informed of the licenses of everyone on the project and the
permits that have been approved. They must understand that there may be
consequences for them if any unlicensed or unpermitted work is performed. If a contractor
does not follow state regulations, it does not matter whether he was instructed
to do so by an unlicensed out-of-state construction manager. The subcontractors
and contractors should document all conversations to prove that they were
instructed to do something illegal. This will help them in case lawsuits come
up due to their involvement in the project.
In any case, the
contractors and subcontractors should do to stop work immediately. All work is
performed on this project was done without proper permits and a licensed
construction manager. This is a major violation of the Florida Building Code,
which is against the law in the State of Florida. A historical building has a
very different set of rules and regulations governing its construction and repair.
General contractors, subcontractors, and designers who are not licensed in
Florida should not be working on this project. There are major legal
implications, but due to a lack of experience in Florida construction and lack
of knowledge about the structure’s history, these out-of-state contractors and
subcontractors could cause irreparable damage to this building (Smith and Roth, 370). If I
were part of this group, I would contact an attorney and report to this
developer for all violations that have already occurred. I would also contact
local authorities to make them aware of the situation because code violations
can mean the difference between life or death for people living or working in
those buildings.
However, there is also
a counter-argument that since the Construction Manager has told them that he would
handle the permits, they might be inclined not to inquire further about whether
or not all of the necessary permits have been secured. The subcontractors will
have difficulty determining whether or not this is true since they do not have
direct contact with Building Officials. They may also be concerned with
compliance with local, state and federal building codes, leading to more
serious legal consequences. In addition, due to their lack of knowledge regarding
both state and local law, it is possible that some of the design professionals
hired from New York may not be licensed in Florida. To protect themselves from
potential legal ramifications, the subcontractors should consult with attorneys
prior to working on many projects requiring licensure (Barrie, Donald and Paulson, 430). Lastly,
There are many reasons why a design professional would not submit their designs
to the Miami Beach Building Officials. The design professional may not have a
license in Florida, or they may have failed to obtain the requisite permits to
conduct business in the State of Florida. The design professional may also be
seeking to avoid public scrutiny from city officials who would otherwise
require them to conform with state and local building codes.
In conclusion, there
are several problems in the case scenario. The construction manager is
unlicensed and is not supposed to manage the project. The design professionals
are not licensed in Florida, and they did not submit their designs to Miami
Beach Building Officials. In addition, the contractors and subcontractors are
required to pull permits. Based on this information, they should be fined
because it indicates that they were aware of the rules and proceeded anyway. Ethical
concerns are probably the most important to deal with. If this project is a
historical building, they have to be careful not to damage or ruin the historical
integrity of the building. The legal ramifications may come later, but they are
still of great concern. The contractors and subcontractors could be liable for
damages done if people get injured or killed because of improper safety
precautions taken during this renovation. There could also be fines if an
investigation occurred after the fact and determined that historical rules were
broken. The subcontractors should immediately halt work on this project and
contact their lawyer as well as any governing agencies that handle these
situations. They should also alert their insurance companies of the situation
and ask them how to move forward. I would advise the subcontractors and
contractors to walk off the job immediately. If they fail to do so, they are
putting themselves at risk of a lawsuit if something goes wrong with the work.
They have no assurance that the work was done in compliance with all applicable
laws and codes. Alternatively, the subcontractors and contractors should
contact a lawyer before starting any work. The first thing the contractor
should do is make sure that the hotel has a certificate of occupancy. The
contractor and subcontractor may be held liable for civil penalties if they
proceed with construction without a certificate of occupancy. Since the
structure is a historical building, there are additional concerns. When
performing work on a historical building, there is a heightened risk of unfair
business practices because the historical nature of the building confers
certain protections. The contractor must ensure that he has not been hired to
violate Miami Beach’s building code or historic preservation laws. In other
words, the contractor must be certain that his work does not violate existing
laws or regulations in any way.
Works Cited
Barrie, Donald S., and Boyd
C. Paulson Jr. “Professional construction management.” Journal of the Construction Division 102.3 (1976): 425-436.
Bilbo, David, et al. “Comparison
of construction manager at risk and integrated project delivery performance on
healthcare projects: A comparative case study.” International Journal of Construction Education and Research 11.1
(2015): 40-53.
Gordon, Christopher M. “Choosing
appropriate construction contracting method.” Journal of construction engineering and management 120.1 (1994):
196-210.
Shohet, Igal M., and Shay
Frydman. “Communication patterns in construction at construction manager level.”
Journal of construction engineering and
management 129.5 (2003): 570-577.
Smith, G. R., and R. D. Roth.
“Safety programs and the construction manager.” Journal of Construction Engineering and Management 117.2 (1991):
360-371.
West, Nicola, Douglas D.
Gransberg, and James McMinimee. “Effective tools for projects delivered by
construction manager–general contractor method.” Transportation research record 2268.1 (2012): 33-39.



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