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This issue of the Punch List is sponsored by
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OSHA Enforcement Trends
The Obama administration is pro-enforcement and will be making OSHA inspections a priority. The increase of inspections means an increase of fines and citations. Criminal sanctions for violations considered willful are expected to rise with this increased enforcement.
In order to avoid criminal liability, employers and managers are encouraged to take the following six actions:
- Confirm that Job Hazards Analyses (JHA) or similar hazard assessments are conducted for all expected work activities to identify hazards and develop a corresponding safety and health procedure or practice.
- Confirm an Emergency Action Plan is in place to protect employees against the hazard of fire and conduct drills with local fire responders to ensure that all fire protection equipment is functional.
- Confirm all manufacturers' safety recommendations are incorporated in the JHAs to ensure that they are followed for use of equipment, including cranes, slings, and other devices.
- Conduct periodic audits of all records, such as training records and certifications, to determine the recordkeeping is maintained in accordance with regulations.
- Discipline any employee who fails to comply.
- Document your actions including corrective measures taken when non-compliance is identified.
Demonstrating a "good faith effort" toward compliance with these legal obligations will serve to negate any claim of criminal intent on the part of the employer or a manager to intentionally expose an employee to the hazard of serious injury or death.
If you would like additional information, contact Gibson Insurance Group's Construction Team at info@gibsonins.com or 574-245-3532.
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Inadequate Tool To Measure Safety
The pre-bidding and/or pre-qualification processes for many construction projects contain a wide spectrum of requirements a contractor must provide to the project owners. One tool that has become commonplace in gauging the safety of the construction company is the Workers' Compensation Experience Modification Rate (EMR) or mod factor.
The EMR, in at least 38 states, is formulated by the National Council on Compensation Insurance (NCCI). NCCI gathers workers' compensation payrolls and injury data from the insurance carriers on each insured and uses the information to produce the EMR that will then be utilized to calculate their annual workers' compensation premium.
An EMR of 1.0 is considered to be the "average" for employers of that size in that same industry, in that same state. An EMR lower than 1.0 is referred to as a "credit mod" and an EMR higher than 1.0 is called a "debit mod".
Because EMRs include data on injuries, some owners use it in their bidding or pre-qualification process to determine if a contractor or subcontractor is running a "safe" operation. Some general contractors may even be disqualified from bidding if their EMR is higher than 1.0.
What owners may not understand is that the EMR document is developed and formulated by the insurance industry and is used as an actuarial tool by the underwriter to assess a premium rate structure for the workers' compensation policy. The calculation does not take into consideration employee hours, the sophistication of the safety program, or the efforts of safety professionals that are working everyday to make job sites safer.
In addition, the calculation may be influenced by external factors that have no bearing on the injuries of the contractor. Examples range from inputting errors on the payrolls by NCCI and the differences in claims handling and reserving methods from carrier to carrier to injuries caused by another party that are in the process of subrogation but have not yet been settled. Even an economic downturn could have a negative impact on the EMR as decreasing payrolls can cause EMR increases.
While the use of the EMR in the bidding/pre-qualification process may be a convenient way to determine a "safe" employer, it remains not only an unreliable factor, but one that is externally influenced by many administrative, legislative, and economic factors that are not an accurate reflection on the safe performance of a contractor.
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Strategies For Transferring Risk To Others
General contractors typically have greater bargaining power with transferring certain construction risks to lower tier contractors. Therefore, it is important to know what steps to take to make the transfer as effective as possible. The ultimate goal is to have contract language that is current, compliant with applicable statutes, and consistent with the standard methods of providing insurance coverage. It is also important to require a written contract with every subcontractor, either by annual agreement for all work or by separate agreement for each project.
Most states have limitations on the types of risks that can be transferred. It is critical to have knowledgeable legal council draft indemnity clauses that apply to the statutes and common law requirements of the state where the work is being performed.
In addition to a properly worded indemnity agreement, a general contractor needs to take reasonable steps to ensure the subcontractor has the ability to fund the indemnity agreement in the event of a loss. The most common way is to require the subcontractor carry insurance to respond to their contractual obligations. Although it is not always easy to determine what limits should be required for every subcontractor, a set of minimum limits can be determined and then adjusted according to the size or nature of the project, or the specific construction trade. You should consult with your insurance advisor for the specific coverage and limits that will work best with your contract.
You will need to develop a certificate management system to ensure the evidence of coverage is received from all subcontractors and reviewed for compliance against the contract agreement.
Finally, contract indemnity and insurance requirements should be reviewed periodically in order to update outdated terminology or other language that may need to be modified.
For further information regarding formalizing your risk transfer techniques, please contact Gibson Insurance Group's Construction Team at info@gibsonins.com or 574-245-3532.
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Managing Change Orders
In the wake of everyday changes, contractors should ask themselves if they have a well-documented procedure for handling change orders.
Here are four tips for developing a change order process:
- Know your contract and if a change order is necessary, be sure to have it signed and in your file prior to performing the work. It is important to address change orders as they happen versus waiting until the end of the project to submit them. This way you are assured you have approval for the changes before you do any work.
- Be persistent in your collection of change order payments. Don't record change orders as revenue until they are signed because of the impact on your income statement.
- Update your builders risk policy with any increased values due to change orders. Overlooking this step could result in a coinsurance penalty at the time of loss.
- Develop a "frequently overlooked costs" checklist so that you are considering all costs involved such as materials, labor, tools, clean-up, bonds, insurance, safety, fuel, and warranties.
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