The Cost Impact of Construction Safety in Alberta’s Workplace

December 8, 2012

The attached report offers insight into the cost impacts of a safety program in the construction industry in Alberta. It examines the positive aspects of a safety program vs. the negative situations when one does not exist.

The following is a breakdown of what is included in the report: 1. A brief look at what a safety program is and what defines it as successful. 2. The construction industry’s impact on Alberta’s economy, including growth and current trends. 3. Cost impacts on various parts of a construction company, including morale, legal and direct costs and expenses. 4. Implications of not maintaining a program and how that can affect an organization financially.

The research includes a variety of information, primarily from Alberta Industry Profiles and personal experience working for a Construction Safety Organization. My personal experiences are supported by publications on principles of construction safety.

Thank you for the opportunity to examine the far-reaching impact of safety on the construction industry.

Sincerely,

TABLE OF CONTENTS INTRODUCTION 1 What is a Safety Program 1 Components of the Industry 1 The Industry in Alberta 2 BENEFITS OF A SUCCESSFUL SAFETY PROGRAM 2 Benefits on Employee Morale and Impact on Organization 2 Legal Benefits and Impact on Organization 3 Cost Benefits and Impact on Organization 3 Workers’ Compensation Benefits and Rebates 4 COST COMPARISON TO PROGRAM VS. NO PROGRAM 5 Legal Implications and Regulations 5 Long-term Impacts of Fines Levied Due to Safety Infractions 6 CONCLUSION/RECOMMENDATION 7 REFERENCES 8

INTRODUCTION
Safety in the workplace is an ongoing concern; but what are the ultimate cost benefits of maintaining a successful safety program?
The purpose of this paper is to explore the financial impacts and potential benefits of a successful company safety program, as opposed to the potential expense of having no safety program. This report will focus on the construction industry in particular, with emphasis on the trade in Alberta.
What is a Safety Program
A safety program consists of a written set of procedures and policies. It is expanded on with documentation for incidents, investigation on any near misses, and preventative controls to prevent future incidents of a like nature. A successful program will have a Job Hazard Analysis for each set of tasks in a specific job, and control methods that would be used to prevent any incident from occurring. The Job Hazard Analyses become a part of the company safety program. A program is constantly maintained and evaluated to ensure that it is in keeping with current trends in a given industry (Booty, 2006). Companies with a successful safety program in Alberta are eligible for a Certificate of Recognition (COR), which is increasingly required by companies bidding on public contracts.
The COR program is part of Alberta’s Partnerships in Injury Reduction initiative, a program that promotes workplace health and safety through partnerships with various stakeholders that include safety associations, industry groups, employers, educational institutions and labour organizations. Partnerships in Injury Reduction recognizes employers for their health and safety management system through an audit and certification process that ultimately earns them the COR. (Guzman, 2012)
Components of the Industry
The construction industry in Alberta is made up of a variety of jobs and positions. These include, but are not limited to: electricians, pipefitters, road builders, road maintainers, roofers, carpenters and various other jobs involved in pipelines and building for commercial, residential and industrial applications (Government of Alberta, 2012). Even though office employees of construction companies are often included as part of the construction industry, this paper will focus on field employees, because field employees are exposed to a higher level of hazard than their office counterparts. The report is further limited to the province of Alberta and guidelines in that province.
The Industry in Alberta
According to Alberta Industry Profiles, construction employment accounted for 10.1 % of Alberta’s employment in 2011. This makes it Alberta’s third largest labor force (Government of Alberta, 2012). With such a large portion of the workforce involved in construction, safety programs are a vital component for any company to ensure employee health and wellness and reduce insurance and injury costs. The construction industry in Alberta is expected to continue to be significant for both employment growth and domestic output. The industry has steadily grown throughout the recession and is not expected to slow down in the coming years (Government of Alberta, 2012).
BENEFITS OF A SUCCESSFUL SAFETY PROGRAM
Benefits on Employee Morale and Impact on Organization
With increasing media scrutiny and the wide availability of information, it is becoming more difficult for companies to hide any shortcomings in regards to employee health and safety. The employer has a moral obligation to ensure that all reasonable measures are taken to ensure the health and safety of their employees and the public (Holt, 2008). The obligation in Alberta is a legal obligation enforced by Occupational Health & Safety (Government of Alberta, 2010).
Employees are proven to perform better when they believe an employer values their contribution, as well as their continued participation. The morale of an employee is also increased based on their participation in the development of policies and programs to maintain their safety. Alternatively, accidents decrease the morale of employees (Holt, 2008). When an accident occurs, employees may feel fear in the execution of their duties. This can cause employees to act in an unsafe manner, or make errors stemming from that fear. This type of reaction can further put the employee and the public at risk. Training in safety and a strong program can help to prevent an incident from occurring in the first place. In the event an incident does occur, the program can further assist employees with understanding the underlying cause, and give the employee tools to deal with the emotional repercussions of said incident. Finally, a successful safety program will increase the morale of employees by encouraging interaction between management and workers. The cost benefit associated with team work cannot be underestimated.
Legal Benefits and Impact on Organization
Safety programs most often include a section on Environmental Protection. With growing concern among Albertans regarding the environmental impact of various industries, many groups are attempting to launch legal action against organizations that do not follow certain environmental protection guidelines. These groups often bring public scrutiny to construction companies through the media, and cause distrust among the public. This can often affect employee morale, as well as impact the future economic benefits for the company (Holt, 2008). Having an environmental protection policy in place, and ultimately following it, can deter protection groups from focusing on the company. This allows management and staff to focus on the job at hand, rather than the negative publicity surrounding a project. Environmental policies can further assist an organization in their legal defence if court action is brought upon them by a protection organization.
In addition to the above, if an incident occurs on a job site, a safety program has the benefit of providing the required documentation for due diligence. It can protect both an employee as well as the organization as a whole if any incident does occur. Legal costs can be drastically reduced by having a well maintained program, as proper documentation will exist for any previous incidents of a like nature.
Cost benefits and impact on organization
Just as environmental policies can protect against legal issues for an organization, the Safety Program as a whole can drastically reduce their expenditures. Insurance companies will look at the rate of incidents to determine a rate for liability coverage. A company demonstrating a safe history with fewer claims will pay less for coverage than one who has had several claims against them (Holt, 2008). Further, when bidding on a project, an organization with the lower cost for their day to day operations will be able to provide a lower bid, giving them a stronger foundation in the bidding process, and likely making the difference for a contract to be awarded. This ultimately leads to a higher profit margin for the organization and the guarantee of future growth. Rob Feagan, the director for Partnerships in Injury Reduction, has said a valid COR is increasingly a prerequisite for participation in public bids, encouraging many employers to participate in the Partners in Injury Reduction, to boost credibility with business partners (as cited by Guzman, 2012).
In addition to the cost benefits of maintaining a valid COR, Allan Holt stated that:
Financial reasons for accident prevention ensure the continuing financial health of a business and avoid the costs associated with accidents. These include monetary loss to employers, community and society from worker injuries and ill-health, damage to property and production delays. Some, but not all of these costs are insurable and these are known as direct costs. They include the cost of compensation (for which insurance is a legal requirement). Increased premiums will be a consequence of claims, so an increase in overheads is predictable following accidents. (Holt, 2008)
The increase in overheads will have long reaching financial implications for the company and all of their employees.
Workers compensation benefits and rebates
The Workers Compensation Board (WCB) was created by government to insure workers against injury and disability incurred during the course of employment. Individual companies contribute to WCB by paying a monthly premium. Companies in the construction industry who hold a valid Certificate of Recognition are eligible to receive Partners in Injury Reduction (PIR) rebates. PIR rebates allow an employer to recover up to 20 % of their premiums. Eligibility is determined by evaluating a company’s policies, programs, and return to work initiatives. In order to be evaluated, a company must maintain a valid COR and demonstrate compliance with Occupational Health and Safety Legislation (Workers Compensation Board, 2012).
Rob Feagan indicated at a local conference that “despite having twice the risk factor, on average PIR participants have fewer work stoppages, and have a 31.6 % lower loss ratio than non-COR holders” (Guzman, 2012).
In addition to PIR rebates, WCB can offer a discount of up to 60 % on the annual premium payable to WCB for good performance. They also have the option to charge a poor performance surcharge of up to 200 per cent of premiums for a company who does not follow a safety program or has a high rate of injury. This can ultimately impact the contractor in the bidding phase for any contract (WCB Workers Compensation Board Alberta, 2011).
COST COMPARISON TO PROGRAM VS. NO PROGRAM
The costs of creating and maintaining a safety program can often seem high. They involve costs incurred to ensure adequate training of staff, installation of any engineering controls to reduce hazards and risks when available, and purchase of PPE and safety equipment to ensure workers are able to properly execute their tasks in the safest way possible. When initially starting a program those costs are generally incurred all at once; however once a program is well established, only maintenance costs will apply. Without a program in place, insurance, lost time due to incidents and legal costs can far outweigh the start-up costs. Those additional costs will remain high throughout the life of an organization: In a study conducted in 2007 it was found that “Lost productivity and worker replacement, count for double the direct costs in any incident” (Huang, Leamon, Courtney, Chen, & DeArmond, 2007). Additional costs include adverse publicity by local media reporting, possibly affecting the market share of the organization, and increased workers compensation coverage costs. The high costs associated with injuries and incidents emphasise the benefits for construction companies to implement policies to reduce expenses (Huang et al., 2007).
Legal implications and regulations
The construction industry in Alberta is governed by Occupational Health and Safety (OH&S) laws. The OH&S laws make certain legal guidelines to ensure the safety of the employee and the public. Failure to comply with these regulations can result in fines and stop work orders issued by OH&S and the Alberta courts (Government of Alberta, 2010). The fines imposed by Alberta courts are often extremely high, and can be awarded to various institutions to develop training programs to prevent further incidents of a like nature. The Occupational Health and Safety Act states that the fine structure for charges under the legislation are: * First offence - up to and including $500,000 or $30,000 per day while the offense continues, and/or 6 months in jail or the best part all three. * Second offence - up to and including $1,000,000 or $60,000 per day while the offense continues, and/or 1 year in jail or all three. (Government of Alberta, 2010)
On May 14, 2009, Bonterra Energy Corp lost an employee due to an on the job injury in Drayton Valley. On December 5, 2011 the company was found guilty under the Occupational Health and Safety Code and was ultimately fined $275,000. A portion of the fine was awarded to Enform to develop a program to prevent future incidents (Alberta Human Services, 2012). If the company above was working on a 10% margin of profit, they would have to increase sales by $2,750,000 to cover the cost of the fine, not to mention any cost arising from the incident. Additional costs would include: * Legal cost * Lost production * Hiring new staff if needed * Training new employees * Replacement of equipment and materials * Investigation time * Meetings with clients and OH&S to explain how the company will deal with the incident and prevent reoccurrence
Long term impacts of fines levied due to safety infractions
In addition to the financial impacts to the organization brought on by legal action, directors and management may face civil suits for breach of duty of care. These claims can result in judgements for loss of income, pain and suffering, medical expenses and disfigurement (Booty, 2006). Managers can also be held personally accountable by the organization resulting in loss of employment.
OH&S officers have the authority to issue a stop work order. The order will remain in place until the condition resulting in the order is corrected. Production stoppage on a construction site will result in overages to the budget. Companies who are consistently over budget will either cease operations due to bankruptcy, or cease operations because of lack of customer confidence.
CONCLUSION/RECOMMENDATION
Safety is not a choice; it is the right of a worker. With the cost impact of not maintaining a program so much higher, the choice would seem obvious to implement and follow a program on any construction site. “The top benefits of an effective workplace safety program [include] increased productivity, reduced costs, increased retention and [improved] employee morale” (Huang et al., 2007). With increasing legal pressure, the strong presence of the media in today’s corporate market and such strong evidence of costs associated with not having a safety program, it would be foolish not to look at ways of protecting employees, the environment and ultimately saving money long term.

REFERENCES

Alberta Human Services. (2012). Convictions under the Occupational Health & Safety Act. Retrieved December 8, 2012, from Human Services Alberta: http://humanservices.alberta.ca/working-in-alberta/6752.html
Booty, F. (2006). Facilities management handbook. Oxford: Butterworth-Heinemann.
Government of Alberta. (2010). Occupational Health and Safety Act. Edmonton: Alberta Queen's Printer.
Government of Alberta. (2012, June). Industry Profiles: Construction Industry. Retrieved from http://eae.alberta.ca: http://eae.alberta.ca/documents/profiles/industry-profile-construction.pdf
Guzman, M.-L. (2012, 11 28). More changes coming to Alberta's COR program: Official. Canadian Occupational Safety Magazine, 1. Retrieved December 08, 2012, from http://www.cos-mag.com/legal/legal-stories/more-changes-coming-to-albertas-cor-program-official.html?utm_source=responsys&utm_medium=email&utm_campaign=20121129_COSNewswire
Holt, A. S. (2008). Principles of construction safety. Chichester, GBR: Wiley.
Huang, Y., Leamon, T. B., Courtney, T. K., Chen, P. Y., & DeArmond, S. (2007). Corporate financial decision-makers' perceptions of workplace safety. Accident Analysis & Prevention, 39(4), 767-775. doi:10.1016/j.aap.2006.11.007
WCB Workers Compensation Board Alberta. (2011). Pricing Workers Compensation Insurance. Edmonton: WCB Alberta.
Workers Compensation Board. (2012, May 4). Workplace safety, commitment and teamwork translate into positive returns for Alberta employers. Retrieved from WCB Workers Compensation Board - Alberta: http://www.wcb.ab.ca/public/news/2012/performance.asp