Indictments, hefty settlements and regulatory penalties have become increasingly prevalent among the construction industry in recent years. Too often, companies fail to recognize a trifecta of prospective pitfalls including construction-related risks, regulatory offenses and criminal charges. But make no mistake: these potential threats can become a harsh reality for managers who fail to properly budget for compliance. Consider the regulatory landscape. Cities across the country are progressively tightening labor, health and safety regulations to guard against corrupt and fraudulent practices, making the construction industry a rife target for local, state, and federal regulators. This is especially true in large cities where rapid growth and gentrification pique the attention of government officials, and where there is increased public investment in large infrastructure projects. Taxpayer dollars spent on public-private projects certainly translates to greater regulatory enforcement.  Take, for instance, a sampling of recent high-profile cases and it is undeniable that there is increased attention on the integrity of construction projects in cities throughout the country:  Although rare, more egregious cases may result in criminal liability.  For example, in New York City, Sky Materials Corp., Harco Construction LLC, and their owners, are currently facing manslaughter, homicide and reckless endangerment charges following the April 2015 death of a worker crushed when the wall of an excavation pit collapsed. According to the New York County District Attorney's Office, the managers on the job site had been warned repeatedly of unsafe and illegal working conditions, yet made insufficient effort to secure the site.  Most cases result in settlements with firms narrowly avoiding prosecution by deferring to major penalties and restitution payments. These settlements cause far-reaching reputational and financial impacts that can irreparably harm a company.  In a more recent case, federal prosecutors in Brooklyn entered into a non-prosecution agreement with Granite Construction Inc., after an agreement to pay $8 million for involvement in a DBE fraud scheme involving the Metropolitan Transportation Authority in New York City.  Granite Construction publicly admitted to conspiring with a DBE front company to perform work on the project. The construction industry must anticipate risk by adequately budgeting, planning and implementing a comprehensive compliance program before a project breaks ground. Costs associated with potential investigations and prosecution are unpredictably high. It is insufficient to simply conduct an internet search with a cursory review of state and federal databases, debarment lists, and certifications. Nor is it enough to review daily logs for wage and classification missteps, or to expect that violations will be reported on call-in complaint lines.  Effective programming requires substantially more than a robust paper compliance review.  Companies should employ or contractually engage auditors and experienced investigators to regularly be in the field and on the job site. They should also closely scrutinize time sheets, wage classifications, and daily logs, cross-referencing them with active field investigations. Spot audits of invoices and checks should become routine. Even longstanding relationships with sub-contractors should be periodically reviewed.   Elan D. Parra is managing director at Lemire LLC, a compliance and investigations firm based in New York City. The views expressed here are the author's own.
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