3. COST OF H&S MODEL
INVESTMENTINH&S
COSTOFINJURIES
4. CONSIDERATIONS
• Perception of risk often influenced by time and economic constraints
• Spending on H&S perceived not to improve production
• Contractors prioritise production criteria, regarding resources
dedicated to occupational safety as expenditures that have nothing to
do with production aims of organization – costs rather than an
investment
(Fernández-Muñiz, Montes-Peón and Vázquez-Ordás, 2009)
5. HOW MUCH?
• True costs of construction injuries may increase overall construction
costs by as much as 15%
(Everett & Frank 1996)
• There is business case to invest in accident prevention
• Minimum H&S investment should be about 0.80% of contract sum
(Tang 2004)
• Between 1% and 10% of project cost has been suggested
(Hinze, 2006)
7. • What gets measured gets managed! Peter Drucker
• What gets managed gets done!
• You cannot improve what you do not measure!
8. DECISION-MAKING
• Guides behavior proactively
• Reduces administrative effort
RIGHT
INFORMATION
TO RIGHT
PEOPLE
AT RIGHT
TIME
EFFECTIVE
DECISIONS
9.
10. COMPLIANCE
Duties of client
5.1 (g)
• Ensure that the potential principal contractors submitting tenders
have made adequate provision for the cost of health and safety
measures
5.1 (h)
• Ensure that the principal contractor to be appointed has the
necessary competencies and resources to carry out the work safely
11. COMPLIANCE
Duties of principal contractor and contractor
7.1 (c) (ii)
• Ensure that potential contractors submitting tenders have made
sufficient provision for health and safety measures during the
construction process
7.1 (c) (iii)
• Ensure that no contractor is appointed to perform construction work
… has the necessary competencies and resources to perform the work
safely
12. COMPLIANCE
Duties of principal contractor and contractor
7.2 (c) … be reasonably satisfied that the contractor that he or she
intends to appoint has the necessary competencies and resources to
perform the work safely
13. Some form of judgement call must be made
So how much is enough?
What do we measure?
How do we measure it?
15. DIRECT COSTS
• Sometimes referred to as ‘obvious’ costs
• Also as ‘insured’ costs
• Normally reimbursed
• Can be extracted from the mandatory legislative and
regulatory compliance requirements
16. EXAMPLES OF DIRECT COSTS
• Medical expenses
• Wages
• Repair or replacement costs
• Health and safety appointments
• Health and safety meetings
• Signage
• Training
• WC and insurance premiums
• Induction program
• Health and safety plan
• Health and safety file
• Health and safety audits
• Fitness for work certificates
• Health and safety inspections
• SWPs or SWOPs
• Health and safety equipment
• PPE
17. INDIRECT COSTS
• Sometimes referred to as ‘hidden’ costs
• ‘Not obvious’ costs
• ‘Uninsured’ costs
• Normally not recovered
• Have to be extracted from historical records which may not
be detailed
• Usually only after something has gone wrong!
18. EXAMPLES OF INDIRECT COSTS
• Injured workers lost time
• Lost supervisory time
• Co-workers’ lost time
• Damaged equipment, plant and
tools
• Overtime costs
• Loss of expertise
• additional medical costs
• damage to property
• idle plant and equipment
• Recruitment cost
• Training of replacement/learning
curve
• Legal costs
• Delays and disruptions
• Community costs
• Loss of reputation and goodwill
• Fines
• Costs of investigation
• Waste
20. Cost of compliance (Cc)= direct costs (Cd)
Cost of prevention (Cp) = Cd + indirect costs (Ci)
If, Cp = Cc + Ci
then Cp > Cc
21. So how much is enough?
If direct cost is known can total cost be projected?
22. A STUDY
• Cost data extracted from accident reports of selection of 100
construction accidents in organization with major annual
construction spend
25. Nature of Incident
Exertion/
Ergonomics (ee) tcee ≅ dc + 1.9dc ≅ 2.9dc
Burn (b) tcb ≅ dc + 2.3dc ≅ 3.3dc
Falling Object (fo) tcfo ≅ dc + 1.1dc ≅ 2.1dc
Cut/Caught (cc) tccc ≅ dc + 2.0dc ≅ 3.0dc
Struck (sb) tcsb ≅ dc + 2.4dc ≅ 3.4dc
Electrical (el) tcel ≅ dc + 2.2dc ≅ 3.2dc
Fall (f) tcf ≅ dc + 2.4dc ≅ 3.4dc
Total costs of
various types of
accidents
26. Non-fatal
Accidents (nf)
tcnf ≅ dc + 1.6dc ≅ 2.6dc
Fatal Accidents
(f)
tcf ≅ dc + 2.5dc ≅ 3.5dc
All Accidents (a) tca ≅ dc + 2.27dc ≅ 3.25dc
Direct Costs
vs
Indirect Costs
Including
Fatalities
Non-Fatal Fatalities
Direct Costs 30.59 38.92 28.70
Indirect Costs 69.41 61.08 71.30
Ratio of Direct to
Indirect Costs
1:2.27 1:1.57 1:2.48
27. ANOTHER STUDY
• Pilot study to determine how much contractors allow for
construction health and safety
• Cost has a role in reducing accidents and improving
efficiency
28. REFERENCE TO H&S
DOCUMENT 0 1 2 3 4 5 MEAN
SSM 23.8 33.3 14.3 19.0 0.0 9.5 1.67
JBCC 28.6 28.6 14.3 9.5 14.3 4.8 1.67
GCC 42.9 14.3 14.3 19.0 0.0 9.5 1.48
MODEL PREAMBLES 28.6 28.6 28.6 9.5 0.0 4.8 1.38
NEC 47.6 19.0 4.8 19.0 0.0 9.5 1.33
FIDIC 57.1 19.0 14.3 4.8 0.0 4.8 0.86
H&S NOT GIVEN PROMINENCE IN CONSTRUCTION
CONTRACTS AND DOCUMENTS
29. PROVISION FOR H&S
FORM OF PROVISION %
Provisional Sum – 2013/2014 < 10%
Provisional Sum – 2014/2015 ~ 20%
Detailed H&S Preliminaries – 2013/2014 > 10% < 20%
Detailed H&S Preliminaries – 2014/2015 > 20% < 30%
• PREFERENCE FOR DETAILED PRELIMINARIES
• INCREASING NEED TO ALLOW FOR FINANCIAL
PROVISION FOR H&S
30. COSTING AND FINANCIAL
PROVISION
• Detailed H&S section in Preliminaries section of Bills of Quantities
• At least provisional sum in Preliminaries section of Bills of Quantities
• Contract documents should promote H&S
• Existing contract documents do not promote H&S
• Contractors are not given opportunity to price items in H&S
specifications on equitable basis
• H&S specifications did not include ‘design and construction’ method
statements
31. H&S CONTRIBUTION TO COST
LACK OF KNOWLEDGE OF INDUSTRY OF NECESSARY FINANCIAL PROVISION FOR
EFFECTIVE MANAGEMENT OF CONSTRUCTION H&S
COST UNSURE NO YES %
Tender cost estimate 42.9% 23.8% 33.3% 5.9%
Project cost 47.6% 23.8% 28.6% 10.9%
33. OBSERVATIONS
• How are costs going to be
arrived at?
• Accurate recordkeeping
required
• Set up H&S Cost Center
• Cost-benefit analysis
necessary
• Costs dependent on type of
activities
• Cost dependent on history of
accidents
• Limited opportunity to include
true cost of H&S
• Lack of equitable means
34. CONCLUSION
• Focusing only on cost of compliance may result in under-
provision
• Focus should be on cost of prevention
• Using costs of accidents possible to calculate cost of prevention
• Increased investment in cost of prevention reduces cost of
accidents
• Minimum is between 1% and 10% of project cost
