Loss Prevention Loss Prevention Alerts

LPA 73 – Liability for Subcontractor’s Fraud

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Published January 2023

An AGS member has reported an incident which has left them liable to their client for the dishonest conduct of their subcontractor.  The circumstances, in brief, are that the subcontractor was tasked with drilling and logging some boreholes shortly before the Christmas holidays.  The AGS member duly received a set of borehole logs from the subcontractor which did not reveal any cause for concern.  Subsequently, however, when construction commenced, it was discovered that the ground conditions at depth in the area which had been investigated, were not as described in the logs.  Although it is accepted that boreholes cannot give a complete picture of ground conditions across a site, in this case the location both of the boreholes and of the construction was such that the description given in the logs beyond a certain depth was obviously entirely incorrect and must have been fabricated, probably because the subcontractor’s staff wanted to finish work for the Christmas break and therefore did not sink the boreholes to the full depth required.   This is a breach of contract on the subcontractor’s part but it also a deliberate deceit or “fraud”.  This LPA discusses the liabilities that arise in these circumstances and whether any remedies are available for the AGS member.