When we think of the phrase Caveat Emptor, which is Latin for “Buyer Beware”, we typically think about the risks associated with business transactions that transpire directly between sellers or service providers and consumers. But in the protection profession, where multi-tiered contractual relationships are the norm, the legal doctrine of vicarious liability – a strict liability where someone is held responsible for the actions or omissions of another person – establishes that the entity whose is directly contracted to provide a product or service can be held liable for the acts or omissions of any other entity that the Prime Contractor hires to deliver the services described in the original contract, Caveat Emptor is a phrase that cannot be ignored.
Now, make no mistake about it, when properly structured and managed, this multi-tiered approach to contract service delivery is valid, viable and can add value for the client by the simple fact that they are the ultimate benefactor of service provided by practitioners with firsthand knowledge of the local environment, situation and risk. The key phrase being, of course, “properly structured and managed”; as the Prime Contractor bears the ultimate responsibility for the errors, omissions, contract violations, etc. of any sub-contractors they bring into the fold.
Given the complexities of these issues, it’s often easier to use a theoretical example to illustrate the vicarious liability risks associated with Prime Contract/Sub-contract service delivery models in the protection profession. For example, let’s assume for a moment:
You are the President & CEO of ABC Security, a rapidly expanding global services provider. From humble beginnings in your native country of Karjackistan™, you have built your company into a well known and respected global brand. One day, because of your company’s solid reputation and global reach, you get a call asking whether you would be interested in protecting a gentlemen – for the purposes of the scenario we’ll call him Mr. Gallant – who is the CEO of a very high profile company that is expected to make a highly anticipated announcement any day now concerning the future of his company. From your discussions with the client, you learn that the initial announcement will be made in Gotham City, followed by a series of meetings and media appearances throughout the city for several days afterward.
While this is great opportunity to take your company “to the next level”, you quickly realize that, despite having over 300 employees worldwide, you don’t have enough manpower to provide the service required under the contract you have just signed with Gallant’s company. In the past, you have used the services of XYZ Security on smaller projects in Gotham City. So you reach out for the owner of the company, who has parlayed having done some security work for a rather controversial media figure into a moderately successful, albeit small, security company and thus understands not only the operational strategies and tactics of providing effective protective services, but should understand the legal/liability aspects as well. Given your past experiences with him and his company, as well as his assurances that his firm can deliver the required services, you sub-contract XYZ security to provide the services required under the contract you have with Mr. Gallant’s company.
This is where the potential risks begin to increase exponentially for the Prime Contractor in terms of vicarious liability. Your firm – the one who the client identifies with the service being provided – is contractually obligated to provide the required service in the manner described in the contract and/or in accordance with generally accepted industry practices. Even if the exact qualifications are not spelled out in the contract, the legal presumption is that the client has a reasonable expectation of, and is entitled to, receiving services that comport with generally accepted industry practices, to include specifically who is hired to perform the work. It is incumbent upon the Prime Contractor (in this scenario, ABC Security) to ensure that that happens. But If you have simply taken the sub-contractor at his or her word, without performing the due diligence required to verify that the personnel hired by your Sub-Contractor have the appropriate qualifications, such qualifications being established either in the language of the contract or through generally accepted industry practices, the burden of liability being shouldered by the Prime Contractor naturally increases.
Fast forward to a week or so before the actual start date of the contract, and unbeknownst to you – because if you had known, recognizing the vicarious liability risks it creates, you would have intervened – the owner of XYZ Security realizes that he has miscalculated how much it is going to cost to deliver the services he has been contracted to provide to your client, and at the rates he’s agreed to bill ABC at for those services he isn’t going to make as much profit as he had hoped for. For the purposes of this theoretical scenario, let’s assume that he then:
- hires people who only just recently received executive protection training but, at least for some of them, this will be very first detail they have worked in order to maximize his profit margins
- he hires others who, though they work for the uniformed security division of his company, have no formal executive protection training or executive protection experience, again, in order to maximize his profit margins
- additionally, despite the fact that the prime contract requires (and both you and he are billing for) armed personnel, due to the fact that Gotham City firearm carry permits are difficult to come by and thus permit holders typically command a higher rate than XYZ is willing to pay, some of the personnel working the contract will not be armed
- to fulfill the secure ground transportation requirements of the contract, XYZ looks to its network of sub-contractor to provide the required vehicles and drivers. But here again, the lure of increased profit margins proves too strong to resist, and despite charging you the agreed upon rate for trained, professional security drivers, XYZ brings on some drivers that do not have security driving training or, for that matter, any traditional security training, or experience providing secure ground transportation services..
- nor do any of the sub-contractor’s have the proper licensing required by Gotham City’s Transportation Bureau to provide “for hire” ground transportation services within the confines of Gotham
- among the driver’s hired is a gentlemen whom, for the purposes of our scenario, we’ll call Milt Brodie. Given that Mr. Brodie is one of those hired for the contract with no professional security driving experience or training, XYZ’s owner has the “good sense” to assign him to drive a multi-passenger van which is used to handle luggage and junior members of Mr. Gallant’s staff.
Fortunately for all those involved at this point, especially ABC Security, the initial pick up at the airport goes well and Mr. Gallant and his entourage arrive safely at Gotham’s famous Walton Gastonia Hotel, none the wiser that the security drivers and protection personnel that they associate with ABC Security, actually work for another company and are not necessarily qualified, either by the terms of the contract’s requirements or generally accepted industry practices, to provide the services that Mr. Gallant’s company is paying for.
Things go smoothly the next day, but the following day the driver assigned to operate Mr. Gallant’s vehicle falls ill. With such short notice there is not enough time to find a qualified replacement, but because Milt Brodie has done such a great job with the luggage van, he’s tapped to be the replacement driver of Mr. Gallant’s vehicle. Obviously, if, as the Prime Contractor who bears the full weight of vicarious liability, not to mention the potential for your brand to bear the brunt of the damage should something go wrong while Mr. Brodie is behind the wheel of the Principal’s vehicle, if you were aware of this situation you would have intervened. But because you are not physically in Gotham City as all of this is happening, you have no idea of the magnitude of risk your client – and your company – has been exposed to, simply because you took the sub-contractor’s assurances that they could legitimately provide the services required under the contract at face value. However, neither un-verified assurances nor your absence diminishes the vicarious liability that you are subject to as the Prime Contractor. Or, as the lawyers are fond of saying when it comes to vicarious liability claims, from a legal standpoint you, as the Prime Contractor, “have reason to know or should know” the manner in which the services were being provided.
While all of this is cause for grave concern, what if we were to add some additional context to this theoretical scenario? For example:
- But by the grace of God, the Gallant detail wraps up without any major incidents (and everybody at XYZ exhales for the first time in over a week)
- Fast forward a couple of months and one of your longest standing, most prominent clients has a “C” level executive who is scheduled to make a trip to Gotham City for a round of appearances on prominent business-related television talk shows.
- You reach out for XYZ once again, and ask them to provide a security driver and vehicle, as well an additional protection practitioner, to support the clients’ in house protection practitioner.
- Unbeknownst to you given the vicarious liability and brand reputation issues and your responsibility to address them, XYZ once again provides a driver that has no formal protection or security driver training. Additionally, management at XYZ has received complaints about this particular driver from practitioners who worked the only other detail he has ever been assigned to…the Gallant detail.
At this point, the existing vicarious liability issues are compounded by the potential, should an incident occur while the clients executive is being transported around Gotham by an untrained individual, whose performance in a similar assignment was cause for concern, and who is being billed at a rate commensurate with a trained, professional security driver, for a claim to arise that the Sub- Contractor engaged in an ongoing pattern of activity that clearly violated its contractual obligation to provide services in a manner that comports with either the language of the contract, generally accepted industry practices (i.e. providing appropriately and adequately trained security drivers), or both. Keeping in mind, of course, that favorite phrase of litigators in these types of cases is that the Prime Contractor “had reason to know, or should have known…” the manner in which the service was being delivered by the Sub-Contractor, so the Prime Contractors exposure to vicarious liability has also increased significantly due to this pattern of activity.
Now, let’s assume for a minute that this second contract goes off without a hitch. Well…almost; it seems the client’s in house practitioner observes some questionable actions – questionable in the context of the manner in which a trained security driver would perform secure ground transportation services – and, subsequently, reaches out to his point of contact at ABC Security to voice his concerns. ABC’s representative reaches out for the company’s contact at XYZ and receives assurances that the driver assigned to that contract was trained by a reputable provider and has significant experience, but may just have been having an “off day”; all off which is conveyed to the client. As we can see, the vicarious liability issue is now becoming a greater concern for the Prime Contractor.
So, now, that assumption now adds even more context to this theoretical example, inasmuch as:
- ABC is now aware of a possible pattern of activity by one of its sub-contractors that has the potential to create significant vicarious liability risks
- one of ABC’s marquee clients is questioning the manner in which ABC is providing services for which they have contracted ABC to provide
- ABC has asserted that the service provided on the contract in question comported with the requirements and/or generally accepted industry practices
- XYZ neglected to have its sub-contractors or employees sign a Non-Disclosure Agreement before being engaged in either contract, so there is the potential that the aforementioned errors, omissions and/or contract violations could become known to, or by, third parties
Given the totality of circumstance, as described in this theoretical scenario, the Prime Contractors vicarious and direct liability is now reaching a point where it may be difficult, if not impossible, to effectively manage or mitigate those liabilities, and the associated reputation risks, posed by the Sub-contractors errors, omissions, or non-compliance.
As contrived as this scenario is, given all of the ways in which vicarious liability can be created by a Sub-Contractors actions or omissions, it serves to illustrate why a Prime Contractor must be acutely aware of the actions of Sub-Contractors at all times, and be willing to take adequate steps to mitigate or manage the liability risks associated with those actions. In the event that the Prime Contractor becomes aware of the errors, omissions, or contract violations of a Sub-Contractor, they are duty bound to take steps to adequately address the issue in a manner that protects their client’s best interests, or risk compounding the liability they assume as the Prime Contractor. So, with all of that in mind, in many respects a Prime Contractor – as the “buyer” of their Sub-Contractors services – must be even more wary of those whom they are buying from than the average consumer. To do otherwise is to place your brand and your client relationships in jeopardy.
* The companies, people and events depicted in this article are fictitious, any resemblance to real people or events, in whole or part, is purely coincidental
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