Posted with permission from Construction Litigation Reporter, Volume 38, Issue No. 1 (January 2017 issue). Copyright © 2017 Thomson Reuters/West. For more information about this publication, please visit www.legalsolutions.thomsonreuters.com.
Owners of construction projects can reap immense financial returns or suffer disastrous consequences as a result of a single incident. Given their frequency, owners should expect to face claims based on delays, faulty design or construction, and force majeure events like hurricanes and earthquakes. Other risks appear without warning, such as the mortgage crisis, where the monetary fallout can be devastating. Understandably, owners have become vigilant in their quest to minimize risk and avoid monetary loss. As Arnold Palmer taught us, “The road to success is always under construction.” Toward that end, owners continue to develop innovative ways to guard against devastating financial losses.
Over the past decade, “single-purpose” entities have been formed and managed to limit the risk of a construction project to that entity alone. By this process, owners can protect parent company assets as well as personal wealth from exposure due to a failed or troubled project. Yet, the formation of a single-purpose entity is not a bulletproof solution. When an aggrieved party is on the hunt for assets to satisfy a claim, it will aggressively try to dismantle the single-purpose structure. Its end goal will be to pierce the corporate veil and recover losses from parent companies and their principals. Nevertheless, as discussed in this article, there are specific steps an owner can take to use and preserve single-purpose entities to mitigate the risk of a financial disaster.