THE AFFIRMATIVE ACTION COMMITTEE was contacted by a Registered Construction Inspector who was the Project Inspector, on a one hundred million dollar five year capital improvements contract located in a mid-western state. The Project Inspector was selected by the Owner, from an ACIA referral and contracted for the project duration. The Owner retained a Construction Manager to act as the Owner’s Agent. The Engineer of Record was never invited to participate during the inspector’s interview, and was prevented from supervising the Project Inspector.

During the third year of the contract, the Project Inspector was audited by the state employment department for allegedly hiring clerical personnel to perform administrative tasks and claiming them as independent contractors rather than employees. The state agency levied a claim of fifty thousand dollars in back-due payroll taxes and penalties!

The inspector shared the inspection contract with us and this article summarizes what we discovered. The Project Inspector’s original contract with the Owner required “continuous inspection”. The Construction Manager’s field office was under-staffed so the Construction
Manager directed the Project Inspector to hire additional personnel to assist with the clerical and administrative tasks associated with project management.

The Project Inspector declined on the basis that hiring and supervising clerical personnel interfered with the inspector’s statutory obligation to provide “continuous inspection” and have “personal knowledge” of the work. The Construction Manager insisted the additional work was part of the inspection contract. The Construction Manager dismissed the inspector’s objection; under protest two technical inspectors were hired as clerical assistants and placed on the Project Inspector’s payroll.

As a means of managing the project budget further, the Construction Manager informed the Owner the inspection budget had a surplus so he changed the inspection contract language from “continuous inspection” to “part-time”. The Construction Manager later reduced the inspection contract coverage to “on-call”. In making all these unauthorized changes, the Construction Manager had imposed behavioral, financial and relationship control over the Project Inspector.

The legal relationship between the Owner and the Project Inspector was changed from one of an independent contractor to the appearance that the Project Inspector was now the employer of clerical workers. The Project Inspector, and the clerical workers he was forced to hire, were literally reduced to being assistants to the Construction Manager while the quality assurance inspection and materials testing requirements were reduced to below the minimum acceptable levels. The Engineer of Record was never informed.

The Project Inspector sought relief and was advised by counsel to form a limited liability corporation, in order to gain some time, distance and shielding (TDS) and other legal protections against the Construction Manager’s questionable business practices. The two clerical workers received 1099s for reporting their income. The workers filed their state and federal income tax returns and listed their occupation as “self employed” and their principal business or profession as “administrative assistant” on their tax returns.

Independent inspectors are expected to conduct inspections and perform their own administrative tasks associated with the inspection work; yet it seems odd when an inspection company hires inspectors to perform exclusively clerical and administrative tasks. The specific terms self-employed and administrative assistant shown on the two tax returns, coupled with the Project Inspector having incorporated, is what initiated the state employment department audit. The IRS definition of an independent contractor agrees with the state building codes that define the legal relationship between the Inspector, the Owner and the Architect/Engineer of Record. As long as there is no control over the inspector’s behavior and finances the inspector is considered an independent contractor. The same definition holds true for special inspectors, technical and assistant inspectors. Had the state audit process continued, the changes made by the Construction Manager to the Owner’s inspection contract with the Project Inspector would have substantially proven that the Construction Manager was the real employer. The burden of proof of an independent contractor relationship falls on the alleged employer to prove otherwise. There are other legal issues involved in making unauthorized changes in statutory public contracting language; contract interference is the first issue that comes to mind.

SUMMARY:
In an effort to manage the project and impress the Owner, often well meaning individuals will rethink the construction management process and begin to micromanage others to the extent where contract interference occurs. Professional inspectors are knowledgeable, specially trained and often possess numerous licenses, certifications and registrations in order to
remain proficient in their careers.

Quality assurance (QA) managers do not need to be managed. Construction QA teams, such as joint-ventures, are common on long-term construction contracts and QA teams offer numerous benefits.

1. An independent QA Manager, (Project Inspector), once approved by the regulatory agency (building official), is the QA representative for the Owner directly.
2. Independent inspectors can be assigned as alternates or back-up inspectors. In the event the assigned inspector is absent from the project, the back-up inspector can assume duties for the assigned inspector. Inspection continuity provided from other qualified individuals satisfies the requirement for maintaining continuous inspection and having personal knowledge of the construction work.
3. Each independent inspector once approved by the regulatory agency (building official), is responsible to the Owner and the Architect or Engineer of Record until substantial completion and/or project closeout. Final project close-out requires the preparation of a Final Report.

Employees who provide solely clerical and administrative services are considered at will employees and can be terminated at any time before the project is completed.

CONCLUSION:
The inspector is the eyes and ears of the Architect or Engineer of Record, not the Construction Manager. It is the Architect/Engineer of Record, who is responsible to the Owner and regulatory agency (building official) for the design and construction compliance of the work, not the Construction Manager. The Construction Manager may be responsible for selecting qualified inspectors but the inspection contract language that governs the inspector’s duties and responsibilities is already an integral part of the contract documents and cannot be changed without the express written consent of the Architect or Engineer of Record, the regulatory agency (building official) and the Owner. When a Construction Manager interferes in an inspection contract to change the behavior, control the finances and the relationship, the Construction Manager is the “employer”; the Construction Manager must assume all the risks associated with exerting that degree of control.

Inexperienced construction project managers will inadvertently inject conflicts of interest into inspection contract language in order to manage the project and generate a profit. Other than maintaining an accurate construction schedule for conducting compliance inspections and performing conformance tests there is very little activity for a Construction Manager to manage in an inspection contract. Why assume more risk than is necessary?

The terms and conditions of an inspection contract are clearly set-forth in the adopted building codes, construction standards, contract technical specifications, drawings and detailed further in the special inspection requirements prepared by the Architect/Engineer of Record.

The State of California Division of the State Architect has legislation that clearly defines a Construction Manager’s capacity and limitations with respect to the behavioral, financial and relationship control over a Project Inspector. This committee believes the perfect inspection contract management model already exists.

REFERENCE CITATIONS:

1. Internal Revenue Service Topic 762 – Independent Contractor vs. Employee.
2. California Building Standards Administrative Code (Part 1, Title 24, C.C.R), Sections 4-333, 4-341, 4-342 and 4-343.
3. California Department of General Services, Division of the State Architect, Interpretation of Regulations Documents IR A-3, IR A-7 and IR A-8.

As always, the Affirmative Action Committee invites you to support the ACIA through attending your local chapter meetings and continuing education seminars.