Good Work Over Bad Work

In the most basic sense, if a subcontractor (sub) performs a specific construction task—such as plumbing or electrical work—and the work is faulty, incomplete, or does not meet the contract’s specifications, the sub is typically liable for the damages caused by this defective work. If the defect is due to design errors provided by the general contractor (GC) or another party, the sub may not be liable, provided it followed the design specifications accurately under the Spearin Doctrine.

But what happens when the contract requires the sub to inspect and inherit a portion of the liability of “bad” work that was previously installed by other subs or by the GC?

There are two types of claims to be made in this type of scenario:

• A property owner making a construction-defect claim against the GC and all subs hired for the subject job.
• A GC (and potentially other subs who hired their own subs), making a construction-defect claim, who seeks to recover damages associated with a claim by a property owner pursuant to a contract.

Property Owner’s Claims

A property owner has the ability to make a claim against a GC pursuant to the contract between the two parties, in addition to claims based on statute and negligence for the subject project being built in a non-workmanlike manner and resulting in damages as defined by the jurisdiction.

Note that some states employ the economic loss rule or economic loss doctrine (ELD), which prohibits and/or regulates the ability of a plaintiff to bring simultaneous claims under contract and tort against a single defendant. Be sure to double check recent rulings and legislative work on the ELD in your state, especially if you are handling a claim in one of the following states: Alaska, California, Colorado, Georgia, Illinois, Iowa, Kansas, Maryland, Massachusetts, Michigan, Montana, New Hampshire, Oregon, Rhode Island, Utah, Washington, and West Virginia.

In addition to bringing suit against the GC, to which a property owner has privity of contract, a property owner also has the ability to bring suit against any sub, whether the property owner has a contract directly with that sub or not, under a theory of negligence and the statutory and common law requirements of construction workers to perform their work in a workmanlike manner in accordance with the building codes and/or industry standards.

The important issue on damages for claims brought by a plaintiff is the recovery of attorneys’ fees and costs. Most states prohibit the recovery of fees and costs by the victorious party unless there are provisions and contractual language permitting such recovery, or statutory language allowing for said recovery, commonly in the form of a proposal for settlement or offer of judgment.

Contractor’s Claims Against Subs

A GC has the ability to apply the trickle-down method to defend against claims brought by a property owner. Typically, if/when a property owner brings suit against a GC, the contractor will then turn to its contracts with each of its subs and file third-party actions against those subs, asserting and carrying over, or trickling down, the identical allegations set forth by the plaintiff. This holds true if a GC’s sub, in turn, hired subs, prompting fourth-party complaints and, in some instances, fifth-party complaints. These third-, fourth-, and fifth-party complaints are typically established and framed using the contracts between the parties.

Thus, if a GC seeks to claim damages against a sub, it should:

• Examine the contractual agreement for any breach clauses.
• Collect evidence demonstrating the sub’s non-compliance with the agreement.
• Review contract law and relevant construction regulations.

Let’s take a deeper dive into contractual language that could expand the sub’s potential for liability. Embedded within the contract may be clauses that impose a responsibility on subs to inspect and validate the work product that they are building upon that had been completed/installed by another sub. These clauses are also referred to as “good work over bad work provisions.” These provisions recognize the layered collaboration among subs and introduce an additional layer of accountability. However, the nuances of these provisions can vary across contracts, adding complexity to construction-defect cases. Digging into the specifics of contract provisions, especially those related to cross-sub inspections, becomes a critical component of the resolution strategy for construction-defect cases.

The following is sample language from contracts that could affect responsibility and shared responsibility:

Sub “shall report to the [GC] any unsatisfactory conditions that may affect the finished product before beginning any work that may be affected by the unsatisfactory conditions. In the event that the [sub] applies ‘good work over bad work,’ the [sub] will be held responsible for the correction or repair and resulting damages.”

* * *

Sub shall “coordinate with other trades as needed or required” to ensure prior work is completed in a proper workmanlike manner prior to engaging in contracted work.

* * *

Sub “shall immediately notify [GC] of any discrepancy or conflict with the work already installed. Failure to provide such notification shall constitute [sub’s] affirmation that such prior work is proper.”

Let’s explore some common examples of good work over bad work:

Roofing v. Stucco

The contract specified step flashing to be installed by the stucco sub. The stucco sub installed traditional flashing in a straight line at the wall-to-roof interface in lieu of step flashing. The roofing sub did not address the flashing issues and installed the shingles over incorrect flashing. Fast forward a couple of years and a construction-defect claim is filed for moisture intrusion. As a result of the contractual obligations and resultant damage, the roofing contractor shared in the liability and settlement payout along with the stucco contractor and the GC.

The waterproofing system for the parapet was the responsibility of the roofing contractor. However, the wrong waterproofing was installed, and portions of the waterproofing system were left out by the roofing contractor. The stucco sub installed the stucco system over the incorrect material and the areas of missing material without noting in writing to the GC. The waterproofing or lack thereof allowed moisture intrusion and a construction-defect lawsuit followed. In the end, the stucco contractor shared in the liability and settlement payout along with the roofing contractor and the GC.

Stucco v. House Wrap 

The house wrap over plywood sheathing was stapled; not nailed, despite plans (part of the contract documents) and the manufacturer’s written installation instructions that called for nails for the particular wrap being used. The staples contributed to the rips in the house wrap. In addition, the house wrap was reverse lapped so that when the moisture ran down the house wrap, the water would incorrectly seep behind the lower level of house wrap. The stucco sub was under pressure from the GC to complete applied stucco over the deficient house wrap without notifying the GC. The stucco contractor shared in the liability and settlement payout along with the house wrap contractor and the GC.

Floor Tile v. Framer

The patio slab was incorrectly installed to slope toward the house in isolated areas. The floor tile sub installed tile in isolated areas of the incorrect slope without notifying the GC in accordance with the contractual obligations. Ultimately, rainwater pooled at sliding glass doors at the exterior wall and damaged the wood flooring in the home. The tile installer was obligated by its contract to notify the GC of the incorrect slope and not to proceed until the slope was correct. The floor tile sub shared in the liability and settlement payout along with the framer and the GC.

The intricacies of construction contracts often become apparent when provisions such as “good work over bad work” come into play. This provision in a contract can impact the allocation of responsibility between subs in construction projects, and ultimately affect the apportionment of liability amongst subs within a claim. It influences the allocation of responsibility by emphasizing that the acceptance of installed work equates to acknowledgment of its adequacy, fostering a potential for shared responsibility of another sub’s work product. It also can impact apportionment of liability on the GC, based on jurisdictional allowances.

In addition to a GC benefiting from the contractual “good work over bad work” provisions of a contract, an upstream sub, such as house wrap, may benefit in cost sharing from a downstream sub’s, such as stucco, contractual obligations if the stucco sub had “good work over bad work” provisions in its contract with the GC to confirm if the house wrap installation was sufficient prior to starting the stucco work. Again, such contractual provisions can directly impact the apportionment of liability and overall exposure in a construction-defect claim. 

When representing a sub and evaluating a claim of “good work over bad work,” it is important, and essentially the crux of any defense, to analyze the standard of care/practice for the specific sub, and how any expectations are perceived in the jurisdiction, whether binding or persuasive, and/or laid out within the contract itself. For example, it may be reasonable for a house wrap sub to notice the lack of sheathing in isolated areas; however, it may not be reasonable for a house wrap sub to determine if the framing sub installed the correct nails.

Additional Insured

In addition to “good work over bad work” provisions of a construction contract, it is also common to see contractual language between a GC and sub that requires an insuring agreement in which the sub not only has a duty to provide coverage for its work to not expose the GC, but also the sub is required to provide legal defense to make sure that the GC’s interests are also represented. This is frequently referred to as a “duty to indemnify.” The purpose of this type of coverage is to establish a right or claim for the sub to engage in legal defense that provides representation itself and for the GC in the event of a suit pertaining to the sub’s actions/inactions in which the GC could be involved. With a potential for additional liability by a sub, based on the “good work over bad work” provisions in a contract, the GC might have additional scenarios where the sub would be required to defend the GC, combining both the “good work over bad work” provisions of a contract and the requirement of being named an additional insured. 

A sub is almost always required to list the GC as an additional insured on its insurance policy. Subs do this by adding an additional-insured endorsement to their policy that provides coverage to the additional party in the event of a claim/suit. This, again, provides more assurance from a GC’s perspective that its exposure is likely covered in the event of a loss, and likely covered by multiple subs when “good work over bad work” provisions are also included in their contracts with their subs. Instead of a GC having to expose its own liability carrier in the event of a loss, these contractual provisions may shift the burden of risk onto the sub’s liability carrier as the primary insurer. The GC’s liability carrier may then have a layer of excess insurance in the event that the sub’s limits were exceeded.

Nevertheless, plaintiffs argue the GC is ultimately responsible for the actions of the subs that it retains to perform the work and to ensure said subs are complying with the plans, building codes, and contracts. Therefore, the GC would benefit from this extra level of protection via additional-insured status from its subs, in the event the subs cause a defect to go undetected and/or unreported.

A GC may also require an endorsement in the sub’s policy to include a CG 25 03. This is a “Designated Construction Project General Aggregate Limit” endorsement that changes a policy to make the general aggregate limit apply to each specific designated project. This endorsement provides a specified amount of coverage to each applicable project. It is intended to create a project-specific limit for each project that the party wants to provide for coverage. This provides protection to subs and GCs to know that they have the proper limits of insurance for each specific project in the event of a total loss, including claims that tie said subs to the total loss via a “good work over bad work” provision, and/or operating under a master or general contract for a specific geographical region.

With the implementation of “good work over bad work” provisions, subs are faced with increased liability, shifting some of the oversight responsibilities away from general contractors (GCs). This shared oversight is an attempt to reduce the GC’s liability, offering an additional layer of protection. The expanded scope and liability for subs also brings financial advantages to GCs, such as a sub’s enhanced duty to indemnify, broader additional-insured coverage by subs, higher aggregate limits provided by subs, and a greater number of subs involved in cases with the means to cover the cost of defense. In addition to GCs, upstream subs may also benefit from downstream subs’ obligation to verify previous work, when analyzing liability apportionment.

The pertinent takeaway from this article for insureds, whether GCs or subs, is to diligently report and document any potential discrepancies. Examining the contractual obligations of GCs and all subs is vital for insureds, risk managers, claims professionals, attorneys, and experts.