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Managing Contractor Risks

Posted By admin On June 1, 2008 @ 3:29 pm In Articles,Departments,Rock Law | No Comments

It’s time to place greater emphasis on reducing the risks from contractors working on your site.

by Henry Chajet

On May 1, 2008, the Acting Assistant Secretary of Labor for the Mine Safety and Health Administration (MSHA), Richard Stickler, stated the following:

“One disturbing trend we have seen in metal/non-metal fatalities is contractor deaths. From 2000 through 2006, contractor employees have experienced 21 percent of the fatal accidents. Last year, 32 percent of the fatalities in metal/non-metal operations were contractors. We must take a hard look at why this happens and get it under control.”

Not only are these deaths terrible tragedies, they pose significant risks of severe enforcement and civil liability. When Stickler states, “We must take a hard look,” I suggest that he intends to apply the heavy hand of government to accident investigations, and the resulting enforcement actions and penalties. Given the newly adopted fines of up to $220,000 per “flagrant” violation, and the increasing risk of criminal penalties, a review of contractor risks and compliance programs seems worthwhile; particularly given the election-year politics at work during the upcoming months.

The recent Congressional focus on alleged enforcement failures by the Occupational Safety and Health Administration (OSHA) and the Mine Safety and Health Administration (MSHA) was aimed directly at the agency leadership and the Administration. It is part of the political process during this election year. New legislation passed by the House of Representatives and awaiting Senate action was preceded by hearings and reports that skewered the agencies for lax enforcement and negligence. Like Stickler, every senior OSHA and MSHA regional official is well aware of these Congressional indictments of his or her performance. The response is to increase enforcement severity and ignore the industry’s enviable safety record, measured on an hours-worked basis, as compared to the rest of the world. The result is a massive increase in enforcement and financial risks that require aggressive risk-reduction programs, particularly those aimed at contractors and subcontractors.

Throughout the United States, state workers’ compensation programs set fixed compensation for accidental workplace injuries and illnesses suffered by employees in exchange for prohibiting lawsuits by employees and their heirs against employers. However, contractor and subcontractor employees can often sue the site operator, even though they are barred from suing their own employer — the contractor company — by the state’s workers’ compensation shield.

Under the Mine Safety and Health Act and the Occupational Safety and Health Act, MSHA and OSHA can issue citations and penalties to both the contractor and/or the site operator/employer, even if a subcontractor caused the violations. Plaintiffs’ lawyers can use these enforcement actions as evidence in lawsuits against the site operator, increasing the risk of liability and punitive damages.

Stickler’s remarks represent the reality of today’s enforcement atmosphere and provide clues for risk-reduction strategies. He states that the “MSHA Web site can be a useful tool to help assess the safety performance of contractors before they come on your property….the contractor’s accident frequency rate…details of violations and accidents charged against the contractor” can be reviewed. He is correct — if the MSHA information is placed in the context of a feasible contractor risk-management program.

Write good contracts

A risk-reduction program for contractors and subcontractors must begin with a company policy that mandates protection for all personnel that enter the site, regardless of their status as employees, contractors, or visitors. Written contracts or purchase orders must be used to set forth the safety, health, and compliance duties of contractors and subcontractors. The common practice of telephoning contractors, requesting work, and permitting site entry and job performance, without documentation, must be eliminated to establish an effective risk-reduction program.

To overcome administrative burdens and delays in time-sensitive situations, local, routine, and long-term relationships can be memorialized once in a written contract and all future work can be performed according to the terms of that contract, by the use of a written purchase order or work order that refers to the contract. As is customary, the documents should require compliance with “all laws and regulations,” but also should include specific, critical safety and health mandates like training, work place hazard inspections, and personal protective equipment (PPE). The contract and purchase order documents can reference more extensive safety and health programs and rules and require compliance with them, including the use of site safety and health “checklists” or “forms” that document compliance.

Stickler’s admonition, essentially to use contractors and subcontractors with good safety records, is excellent, but not achievable using only the MSHA Web site data (which may report nothing for most small subcontractors and no prior incidents for many others). Whenever possible, contractor selection should include consideration of the company’s expertise and workers’ compensation history and ratings — far better tools for safety and health risk comparisons than the government Web sites. Moreover, “indemnification and defense” contract provisions, as well as specific and adequate insurance coverage contract mandates, and the production of proof of insurance, are critical risk-management tools.

Keep it simple

Contractor risk-reduction programs must be easy to implement in order to be effective, particularly at small operations and job sites. The programs should be designed to be implemented by either hourly personnel or management, with minimal additional training, using predetermined forms and checklists of critical items applicable to the site and expected jobs (e.g. insurance certification, training documents, fall protection, lockout/tag out, and PPE).

Site access should be restricted, controlled, and documented to the greatest extent possible to help implement a risk-reduction program. Site entry should be combined with, and dependent upon hazard warnings, site rules, training documentation, and accompaniment by site personnel, to the fullest extent possible.

The effectiveness of a contractor risk-reduction program can be measured by its application and enforcement, and its failure can be measured by its tolerated breach, generally long before an accident ever takes place. Contractors and subcontractors must be monitored for safety and health contract compliance, just like they are for job performance. Documented enforcement of contracts, including suspension and termination, should be the means for addressing contractor and subcontractor safety and health failures. “Form” warning notices and letters, as well as management training, can make this difficult task easier for site personnel charged with implementing risk-reduction programs.

Customize your program

Identifying site-specific, high-risk jobs and the most likely potential enforcement actions can help tailor a contractor risk-reduction program. Stickler and MSHA, like OSHA, provide help by identifying the leading causes of violations and accident-related enforcement actions. In the same May 1 speech, Stickler stated: “During the last five years, failure to block equipment has been one of the two most-often cited standards following a fatality at metal/non-metal operations.

“The other most-often cited standard following a fatality at metal/non-metal operations is a lack of task training, which ties into another area of concern that is maintenance. “Almost half — 13 out of 31 — of the fatal accidents last year in metal/non-metal operations were maintenance, construction, or repair related. Inadequate procedures, lack of risk assessments, and no task training prior to performing work were the leading causal factors of these accidents. “Personal protective equipment is also an area that requires improvement. Eight of the 31 accidents involved the lack of personal protective equipment that might have saved lives.”

Addressing these concerns provides focus for risk-reduction programs and site implementation. Additionally, reviewing a site’s specific history of enforcement actions (available on the MSHA and OSHA Web sites) provides additional focus, training, and self-inspection topics to help prevent “repeat” violations that carry much larger penalties and enforcement risks. Creating and implementing programs to attack the cause of already issued repeat violations, including aggressive company rule enforcement programs, also provides a response to the potential use of repeat violations by plaintiffs’ lawyers.

Experience defending companies in accident investigations, designing liability risk reduction programs, and training management personnel indicates that now is the time to reinvigorate, audit, improve, and implement contractor risk-reduction programs. Given today’s enforcement atmosphere, combined with the continuous litigation threats faced by industry, an ounce of prevention is worth far more than the pound of cure.

Henry Chajet is a partner at Patton Boggs LLP. He counsels and represents clients in occupational safety and health matters, focusing on crisis management, standard setting, liability prevention, regulatory and congressional proceedings, and design and review of product stewardship programs. Chajet may be reached via phone at 202-457-6511 or via e-mail at hchajet@pattonboggs.com [1].


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