02 Oct 2014

Contractor management - who is responsible?

by Shae McCartney, Amy Laing

There are serious implications if a principal attempts to address safety concerns by directing how the contractor should carry out work.

How can a principal respond to concerns about a contractor's safety record, without assuming control and taking on additional responsibilities?

This can be a difficult balancing act with significant implications, as demonstrated in the recent New South Wales Court of Appeal decision in Waco Kwikform Ltd v Perigo and Workers Compensation Nominal Insurer [2014] NSWCA 140.

In that case, Waco Kwikform was ordered to pay $1 million in damages to the employee of a contractor who was injured just 11 days after Waco Kwikform assumed control of the system of work in response to safety concerns.

What happened in this case?

Axis Constructions was the principal contractor in relation to refurbishment works to the roof of a grandstand in Glebe, Sydney. It contracted with Waco Kwikform, the subcontractor, for the supply, erection and dismantling of scaffolding to provide access to the roof. Waco supplied the scaffolding and contracted with Bradley Tracey Scaffolding Services for the supply of workers to erect and dismantle the scaffolding. Axis Constructions were not involved in the court proceedings.

Mr Perigo, an employee of Bradley Tracey, fell eight metres whilst dismantling the scaffolding and suffered serious injuries. He sued both the subcontractor and his employer in negligence.

Contractor Management

The New South Wales Supreme Court found that both the subcontractor and his employer were negligent, and this was appealed.

One of the key issues in the appeal was the scope and content of the duty of care the subcontractor owed to Mr Perigo as an employee of the employer. The scope and content of the duty were impacted by key events that occurred on 5 May 2006, just 11 days before Mr Perigo's incident.

Before 5 May 2006: Duty of care owed by subcontractor to employer's employee

Axis had prepared an OHS management plan for the scaffolding works. The employer's responsibilities under the plan included ensuring that all works were conducted in a safe manner and facilitating the preparation of a safe work method statement (SWMS) for scaffolding tasks.

Under the contract between the subcontractor and employer, the employer was responsible for ensuring its employees had read and understood the SWMS. It also said that the development of the SWMS did not relieve the employer of its obligation to develop its own SWMS, or to ensure that its employees worked in a safe manner.

The Court of Appeal confirmed the findings of the trial judge that, up until 5 May 2006:

  • the subcontractor had acted reasonably in engaging the employer as a contractor that was competent to control the system of work for erecting and dismantling the scaffolding;
  • while the subcontractor retained a supervisory function at a high level, it was under no continuing duty to prescribe and enforce a safe system of work for dismantling the scaffolding.

Post-5 May 2006: Duty of care owed by sub-contractor to employer's employee

However, the content of the duty changed after 5 May 2006. On that date, an incident occurred where an employee of Bradley Tracey fell from a roof at a different site and suffered serious injuries.

The subcontractor initially decided that, because of the 5 May incident and an earlier incident involving the death of one of Bradley Tracey's workers, it would no longer contract with Bradley Tracey. It would also immediately terminate Bradley Tracey's involvement at the Glebe site. However, following discussions between the subcontractor, Workcover and the relevant union, it was decided to allow it to finish the job on the basis that a revised SWMS was prepared.

The revised SWMS was prepared by the subcontractor's OHS manager, without consultation with the employer. Employees of Bradley Tracey were informed that all work had to be performed in accordance with the revised SWMS.

It was also decided that an employee of the subcontractor would be on site at all times to supervise the dismantling of the scaffolding and ensure as far as possible that the revised SWMS was followed. Up until this point, supervisors from the subcontractor had only dropped in to visit the site from time to time between other jobs.

The Court of Appeal confirmed the findings of the trial judge that:

  • from 5 May 2006, the subcontractor assumed control of the system of work for dismantling the scaffolding and substantial responsibility for the direct supervision of the employer's workers, who were required to follow the revised SWMS;
  • in those circumstances, the subcontractor's duty to exercise reasonable care extended to ensuring the system of work adopted by the employer was safe.

What does this mean for contractor management?

As this case demonstrates, contractor management impacts not only on your statutory obligations, but also on the scope and content of your common law obligations.

The relationship between a principal and their contractor is relevant to determining what is reasonably practicable to ensure safety. Principals and contractors need to discharge their obligations in the context of that relationship.

There are many things to consider when managing contractors. In particular, when engaging contractors, principals should exercise due diligence and ensure the contractor has sufficient skills, expertise and resources to carry out the contract safely. If concerns arise about the competence of the contractor or their safety record, principals need to act promptly and proactively. However, there also needs to be careful consideration of the implications of any actions taken.

There are serious implications if a principal attempts to address safety concerns by directing how the contractor should carry out work. Not only can the principal assume responsibility for the safety of the contractor's employees, but it may also have consequences for the ongoing relationship between the parties and compliance with contractual terms.

Where safety concerns are identified, the principal needs to determine how they will address the identified risk. Options may be to:

Take control of the safety risk, in which case the principal needs to be aware of the obligations it has taken on and discharge those obligations proactively; or

Require the contractor to satisfy the principal that it is managing the risk appropriately. If control of the risk is to remain with the contractor, the principal should require the contractor to demonstrate how they will ensure safety and address the safety concerns, which may include:

  • requiring the contractor to regularly report on compliance and provide evidence that the risk is appropriately managed;
  • provide for a system of monitoring and review e.g. a system of internal and independent audits of compliance.

In serious cases, the principal may need to consider terminating the engagement.

Whichever way the relationship is structured, the principal and contractor need to act consistently with that structure and discharge their obligations proactively in the context of the relationship.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.