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A Year of Defaults, Prosecutions and Court Triumphs

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For many companies in the AEC sectors, business never seemed more fraught with risk and complication than in 2012. Lawsuits and indictments kept attorneys as busy as ever, especially as several legal matters reached the trial stage. Projects and risk management became more complex, while financial woes engulfed many recession-weakened small and midsize contractors.

News of sputtering contractors rolled in at a steady clip. Starting with the defaults of major cladding subcontractors, including Trainor Glass, earlier this year and continuing all the way through to the bankruptcy filing of Texas highway contractor Ballenger Construction, contractors reached the end of their financial rope (usually for a combination of reasons) just as the construction- industry recession seemed ready to sunset. For numerous companies, market recovery will arrive too late. However, there were also silver linings. Although surety defaults rose, they weren't so high that they wiped out overall surety profits.

Prosecutions for criminal and regulatory misdeeds filled the industry news channels.

Victories, involving costly legal defenses, outnumbered defeats in the most prominent cases. Several times plaintiffs and prosecutors failed to convince judges and juries of culpability by designers and contractors.

One unhappy owner, Tampa Bay Water, made a strategic decision to sue HDR Engineering over cracking in the utility’s 15.5-billion-gallon reservoir in Lithia, Fla., but the suit proved futile. After a month-long trial, a jury took less than four hours to absolve HDR and its design.

Attempts to pin criminal responsibility on parties connected to jobsite accidents in New York City also came up short.

For example, a state court judge in Manhattan cleared crane owner James F. Lomma of all charges related to a 2008 tower-crane collapse in New York City that killed a crane operator and a sewer worker. That verdict represented the third high-profile New York City prosecution failure related to deadly construction accidents in the past three years. In these cases, when the causes of an accident were unclear and the complexity of the construction work was explored, judges and juries seemed reluctant to assign blame to individuals.

The most spectacular collapse may have been moral, not financial, and seemed to take place in the executive offices of a single major engineering firm.

Alleged ethical lapses drove several executives of Montreal-based SNC-Lavalin out the door. What started as a story that seemed to come out of a Graham Greene novel—millions of missing dollars and, arrested in Mexico, an SNC-Lavalin "agent" linked to a scheme to help smuggle out of revolution-torn Libya the son of the former dictator Muammar Gadhafi—ended the career of several top company managers, including the CEO.

More recently, prosecutors in Montreal charged the former CEO, Pierre Duhaime, with fraud over some work at McGill University. Duhaime was relieved of his responsibilities in March. However, none of the SNC executives has been convicted of a crime. Still, the unproven charges produced a media spectacle. How often do you see the CEO of one of the world’s leading E&C companies covering his face when going into a courtroom or police department?

His successor, former CH2M Hill executive Robert Card, is notable for being an outsider in Quebec business circles. He says he is committed to learning the local language.

The French phrase for “risk control” is "la gestion des risques."

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