Legal and Regulatory

Assessing Risk From Misrepresented or Faulty Products

If a contractor is aware that a supplier has been implicated in legal proceedings regarding representations of product quality, there are a number of steps to take in order to properly assess risk.
By Matthew Olesh
October 9, 2018
Legal and Regulatory

Recent headlines involving both civil and criminal proceedings in matters involving faulty products and misrepresentations by suppliers of those products have the construction industry rightfully concerned. If a supplier has deceived one customer, what’s to say that it hasn’t happened with others?

If a contractor is aware that a supplier has been implicated in legal proceedings regarding representations of product quality, there are a number of steps to take in order to properly assess risk. The first is to closely examine what is being alleged and/or admitted in the matter. It may be the case that the company used the same supplier, was supplied with the same products at issue, or both. It is important to utilize publicly available information – both via media reports but, more importantly, publicly available documents filed in any legal proceeding – to be informed about the particulars of the situation and to understand the distinction between what is merely alleged and what has been conclusively established.

If a contractor has been supplied product by a company that is now alleged to be a bad actor, it is important to scrutinize what product was supplied, what representations were made about the supplied product and how that product was used. A review by an attorney of any applicable contracts or other terms governing the purchase is an essential early step in understanding these issues and what recourse may be available if a contractual breach has occurred.

Issues involving product that is different than that which may be at issue in pending litigation should still be scrutinized carefully if the supplier is the same. After all, if a supplier was willing to misrepresent the quality of one product, what’s to say that it didn’t happen with others? In this circumstance, digging deeper into the specific allegations and/or facts can be particularly useful. Was this a situation where the issues were institutional, pervading many layers of organizational hierarchy? Or was it more of a rogue actor? These details are important and could impact how to deal with any potential issues moving forward.

If the contractor used the same product for which a supplier provided false data to others, steps should be immediately taken to analyze the data provided. Of course, while this remains particularly concerning if the same supplier was used, even the use of the same material provided by another supplier should be examined. Material from other suppliers that originate from the same source should still be looked at to determine whether disclosures as to quality were properly made.

Ultimately, it is in the company’s best interest to determine if any material is potentially compromised and, if so, how and when that material was used. Engaging an attorney to be involved throughout this process and, if necessary, to oversee an investigation can only help prepare for what may be the necessary next steps: taking remedial action with respect to any product used and pursuing legal action for damages incurred.

Depending on the potential issues, remedial action may be necessary to protect against liability in the future. It is not a stretch to envision a worst-case scenario involving a compromised project that results in injury, and an overzealous attorney seeking damages based on allegations that a company was aware of a dishonest supplier and/or potentially faulty product and took no corrective action.

Similarly, if defects based on misrepresentations are discovered, all cards should be on the table with respect to seeking damages against the party at fault. Depending on use of the product and the amount of time passed, proper corrective action could involve monitoring, reinforcement or complete replacement. Any of these could be costly, and legal action can and should be considered if they are necessary and incurred as a result of misrepresentations made by a supplier. Moreover, consultation with an attorney should be done as soon as possible to ensure compliance with any applicable statutes of limitations (which can vary depending on state law).

The steps a contractor will be best served taking will be dictated by the particular circumstances and the extent and severity of the issue. However, addressing an issue as soon as it is suspected that there may be one is of crucial importance. Engaging a knowledgeable attorney early in the process will allow him or her to do everything possible to both protect the company from liability and pursue claims against any wrongful actor.

by Matthew Olesh
Matthew Olesh is an experienced commercial litigator who handles complex litigation, including contract disputes, construction law and real estate disputes, as well as litigation avoidance and risk assessment and management. 

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