The purpose of this publication is to make available to industry the results of research conducted by the Construction Industry institute

(CII). The publication does not necessarily represent the views of CII member companies, but is offered as a contribution to the industry. CII was founded in 1983 to improve the cost effectiveness of the nations largest industry. The members, who represent a broad cross-section of owners and contractors, believe that many of the problems that limit cost effectiveness are common ones, and that real improvements can be best accomplished in a cooperative environment with the benefits being shared by the construction industry at large. CII uses the acronym TOPICS to describe the research effort. TOPICS signifies the six research thrust areas: Technology, Organization, People, Information, Controls, and Sigma (meaning others). The task forces for each area are listed below.

Technology

Information
3D CAD Link international Construction Owner Engineering Organization

Advanced Technological Systems Computer Integrated Design & Construction Design for Safety Environmental Remediation Technology Modularization Technology Strategy

Controls
Contracting, Phase II Dispute Prevention and Resolution International Standards Predictive Tools Quality Performance Measurement Schedule Reduction Total Quality Management

Organization
Partnering II Project Change Management Project Organization II Pre-Project Planning Project Team Building Project Team Communications

Sigma
Barriers to Implementation Insurance Piping Function Retrofit Projects U.S. Navy Demonstration Project Utility Pilot Projects Workers Compensation Insurance

People
ADA Impacts Continuing Supervisory Education Zero Accidents

The Construction Industry Institute The University of Texas at Austin 3208 Red River, Suite 300 Austin, Texas 78705-2650 (512) 471-4319 FAX (512) 499-8101

Not printed with state funds

Zero Injury Economics

Prepared by The Construction Industry Institute Zero Accidents Task Force

Special Publication 32-2 September 1993

 1993 Construction Industry Institute. The University of Texas at Austin. CII members may reproduce and distribute this work internally in any medium at no cost to internal recipients. CII members are permitted to revise and adapt this work for the internal use provided an informational copy is furnished to CII. Available to non-members by purchase; however, no copies may be made or distributed and no modifications made without prior written permission from CII. Contact CII at http://construction-institute.org/catalog.htm to purchase copies. Volume discounts may be available. All CII members, current students, and faculty at a college or university are eligible to purchase CII products at member prices. Faculty and students at a college or university may reproduce and distribute this work without modification for educational use. Printed in the United States of America.

Contents
Chapter Executive Summary 1 Introduction 2 The Direct and Indirect Expense of Worker Injury 3 The Costs and the Savings 4 The Zero Injury Concept 5 Steps to Gain Control 6 Recommendations Appendix A - The Variations of Experience Modification Appendix B - Manual Rate Information Appendix C - Injury Cost Calculations for U.S. Industry Page
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1 4 6 14 17 19 21 23 27

Executive Summary
Worker injury imposes a significant inefficiency upon the U.S. engineering and construction industry. Despite the advent of the OSHA Act in 1972, construction has realized little improvement in safety. Estimates of the total cost of injury for the $450 billion U.S. construction industry range from $7 billion to as high as $17 billion annually. The moral and humane aspects are more than sufficient justification for doing all in ones power to eliminate worker injury. The problem of not knowing how to eliminate worker injury, however, has been pervasive until recent times. With the advent of increasing numbers of owners and contractors who are achieving zero lost workday injuries on construction projects, a new concept is emerging-zero injury. This new-found reality for some has become a sought-after possibility for others. The zero injury concept means that essentially all serious injury to workers can be successfully prevented. Techniques on how to achieve zero injury in construction can be found in ClI Publication 321, Zero Injury Techniques. The practical economies of achieving and sustaining zero lost workday cases are revealed in this companion publication. The workers compensation premium per construction worker ranges from $1,500 per employee per year in the lower cost states and trades to $70,000 per employee per year in the higher cost states and trades. The additional indirect costs, which can be substantial in some instances, must be included to understand the total costs of worker injury. Some companies are finding that the workers compensation premium alone exceeds their profit margin by 100 to 300 percent. The individual employer Experience Modification Rate (EMR) is one control mechanism. EMRs can range from as low as 0.20 for very safe large employers (a low of 0.80 for small employers) to as high as 3.00 for the least safe employers. Some of the workers compensation premium, for example at 0.20 EMR (or 0.80 for small contractors), can be classed as a necessary expense. Beyond this level, one can justifiably say that all expense that is caused by the injury of a worker is unnecessary. In this publication, worksheets and required information are provided for both owners and contractors who wish to calculate their own cost of injury. Specific procedures are given on how to eliminate the unnecessary expenses. Eliminating injury and successfully managing the workers compensation insurance coverage can reduce premiums up to 80 percent. Six action steps are provided to help lower a high EMR situation. Recommendations and key implementation needs also are provided to help in achieving a new concept in the construction industry: zero injury.

1 Introduction
The Moral Issue This document is about the cost of injury. All will agree that humanitarian factors alone are more than enough to justify the effort required to eliminate worker injury. Some are offended by taking into account the cost of injury. It is recognized that to use cost alone as a driving force to avoid injury is wrong. The significant cost of worker injury, however, cries out for exposure to those who worry about the cost of safety programs. Thus, those who are concerned about the cost of effective safety programs will clearly see that eliminating injury makes good business sense. Construction Industry Cost The national waste stemming from at work injuries is estimated by the National Safety Council at over $60 billion per year for all business. The construction industry has one of the highest worker injury rates. The number of disabling injuries in the construction industry recorded by OSHA and the Bureau of Labor Statistics (BLS) in 1991 was 6.1 per 100 workers. With 5.9 million construction workers this extends to 360,000 disabling injuries in 1991. Using the average cost per disabling injury of $26,000 calculated by the National Safety Council, the 360,000 injuries cost the U.S. construction consumer over $9 billion. The CII Zero Accidents Task Force estimates that when both the direct and indirect costs of injury are included, the cost of injury in construction in the U.S. runs as high as $17 billion dollars annually (see Appendix C). The task force believes that even these numbers fall well below the true cost of construction worker injury. This CII publication explains the profit drain caused by the high expense of worker injury. Also illustrated is the monetary importance of working to reduce injury frequencies and severity. Profit and the Expense of Injury: Looking at the Pieces An employers expense caused by worker injury is paid out of potential profit. This potential profit is spent on workers compensation insurance premiums or claims losses, depending on the size of the employer and the nature of their insurance coverage. Also draining the profit are the indirect costs of worker injury. Indirects include such items as lost productivity, disrupted schedules, and administrative time required to deal with an injury. In any enterprise, safety expense can be viewed in two parts: 1. The Necessary: those expenses that must be expended to complete the work with sound safety practice and in compliance with applicable safety laws and standards. 2. The Unnecessary: those expenses that are created by worker injury or are caused by less than efficient safety practices or by safety inadequacies in the execution of the work to completion. The task force believes that all expenses that result from the injury of a worker should be classified in the latter category. A large amount of unnecessary injury expenses may prevent a firm from attaining a competitive position and also dangerously erode profit. Thus, it is managements job to protect the potential profit pool from the drain created by worker injury.

Further Defining Unnecessary Expense Most employers obtain workers compensation (WC) insurance from an insurance company. For this employer, the unnecessary expense is that portion of the workers compensation insurance premium that is above the absolute minimum premium achieved when all injury is eliminated. Of course, all indirect expenses that arise when an injury occurs also are part of the unnecessary category. Some employers are self-insured for workers compensation. For this type employer, the unnecessary expense is equal to the sum of all claims costs paid on behalf of the injured employees to medical providers, plus all attorney fees and any indemnity payments to the injured. Some employers use service organizations to administer workers compensation payments (medical and indemnity) resulting from injury. The service organization charges a fee, which adds to the burden, plus all indirect expenses caused by an injury. Without effective attention to reducing injuries, part of the expense of poor safety (excess workers compensation insurance premiums or claims losses plus insurance carrier overhead) can be so large as to drain all the potential profit, thus forcing a business to close its doors. Contractor and owner management at last realize this. Nationwide, the increasing company operating expense that flows to workers compensation insurance premiums seems out of control. Those concerned feel powerless to stop the profit drain. Another state crisis in workers compensation is reported almost weekly. In a number of states, workers compensation premiums have doubled in the past five years. The range of workers compensation insurance premium expense in construction from the lowest to the highest states is amazing. In most states, the workers compensation premium charged for the construction classification codes is higher than any other type work in the state. Workers Compensation Premium Illustrated Average base workers compensation insurance premiums in the construction industry exceed 20 percent of direct labor in 18 states. In some states in the higher risk trades, the premium can be over 100 percent of direct labor. The base workers compensation premium cost illustration given in Table 1 is for a crew of 100 people working 2,000 hours per year in the following formula: Average Base Premium = (Direct Wages/100) x Average Manual Rate Manual rates are the premium rate charges per $100 direct wage. In other words, the rate is a percentage. Rates vary by trade in each state and are unique to each trade in each state. In the remainder of this publication, manual rates will be converted to percentage of direct payroll. Table 1 reflects the extreme range of the annual base workers compensation premium by comparing a low-cost state, a high-cost state, and an extremely costly trade, i.e., iron workers in Illinois.

Profit Compared to Premium It is not uncommon for a construction contractors workers compensation premium to range from one to three times the corporate annual gross profit as illustrated below. Of course, premiums similar to the larger of those illustrated will dramatically affect the final cost of the job. Table 1. Comparing Premiums across the States Low-Cost State - Premium per 100 Workers per Year Wage $15.00 $20.00 $25.00 Manual Rate 5% 5% 5% Base $150,000 $200,000 $350,000 Premium per Employee $1,500 $2,000 $3,500

High-Cost State - Premium per 100 Workers per Year Wage $15.00 $20.00 $25.00 Manual Rate 30% 30% 30% Base $ 900,000 $1,200,000 $1,500,000 Premium per Employee $ 9,000 $12,000 $15,000

Illinois Iron Workers - Premium per 100 Workers per Year Wage $15.00 $20.00 $25.00 Manual Rate 100% 100% 100% Base $3,000,000 $4,000,000 $5,000,000 Premium per Employee $30,000 $40,000 $50,000

Table 2. Profit Compared to Premium Work Volume $10,000,000 Labor as % of Work Volume 20 30 40 50 20 30 40 50 Manual Rate 15

Profit $500,000

Premium $300,000 $ 450,000 $ 600,000 $ 750,000 $ 600,000 $ 900,000 $1,200,000 $1,500,000

$10, 000,000

30

$500,000

With the illustrated premium in Table 2, one can see that, at all management levels, an understanding of the costs caused by worker injury is desirable. A sound workers compensation knowledge base is mandatory to operate a construction company in a viable way in the U.S. today. 3

2 The Direct and Indirect Expense of Worker Injury

The Direct Expense Workers compensation insurance purchased by the employer usually is the principal device used to cover the direct expense of injury. These include: Medical treatment Hospitalization where required Prescription drugs A weekly wage replacement sum (indemnity) Insurance company administrative costs and profit Larger employers self-insure in many instances. When self-insurance is combined with safety excellence, the savings are always quite large, especially in the high-cost states. The Indirect Expense Researchers have found that indirect expenses are often more detrimental in the overall expense picture than direct expenses. The CII Safety Task Force found in an earlier study that the indirect expense of injury ranged from 2 to 20 times the direct expense (see CII Source Document 67, The Indirect Costs of Construction Accidents). Excluding third-party lawsuits, the indirects versus the directs were found to average 2 to 1. Including third-party lawsuits, a factor of 20 to 1 can be reached. Another study done by a CII owner member firm in 1987 found that the average owner cost to handle a third-party lawsuit (one where an injured contractor employee sued the owner) was at least $100,000 not including court awards or settlements. In the CII research the indirect costs were found to average $21,000 (including legal expense) for a lost workday case and $1,100 for a recordable. Many people overlook the fact that the total expense of worker injury includes this indirect component in addition to the direct expenses. The total overall expense of injury to an employee includes the indirect expense items shown in Table 3.

Table 3. Indirect Expense Lost work contribution or production resulting from the loss of the injureds work effort. Training of replacement worker. Administrative time to investigate the cause of the injury and preparing reports. Time lost by fellow employees as they learn & talk about the injury through formal or informal gatherings. Repair or replacement of any damaged material, equipment or facility. Any required cleanup of the accident scene. THESE ARE NOT COVERED BY INSURANCE. THESE EXPENSES SERVE TO REDUCE THE EMPLOYERS PROFIT MARGIN.

THESE ARE NOT LIKELY COVERED BY INSURANCE. EXPENSES ARE BORNE BY EMPLOYER. THESE EXPENSES MAY BE BORNE DIRECTLY BY THE CONTRACTOR IN HOLD HARMLESS CONTRACT CLAUSES OR BY THE OWNER IN THIRD PARTY CASES.

Handling any resulting lawsuits against third parties, i.e., client.

For those companies not successful in eliminating injury, the indirect expenses add alarmingly to the business overhead. This is part of the unnecessary expense drain from potential profit mentioned earlier, and thus such expenses increase the final cost of the product or service.

3 The Costs and the Savings

The High Cost of Injury Premiums for workers compensation insurance can be extremely high-even though injury frequency is very low, especially with smaller employers. Most but not all CEOs, who sign the workers compensation insurance premium check, must recognize (1) the high cost of workers compensation insurance and (2) the extraordinary cost of worker injury. Calculating the Costs and Savings No standardized methods are available to determine the total expense of worker injury. The total costs include the following expenses: Necessary Unnecessary Direct Indirect

The following paragraphs explain some of the important features of the total cost calculation. For direct expenses, the parts of the calculation are direct wages, manual rates (for classification codes worked), and the Experience Modification Rate (EMR). Direct Wages Workers compensation premium is calculated using only the direct portion of wage expense. This excludes the cost of fringe benefits and generally the overtime portion of an overtime wage (all hours are at a straight time wage for purposes of workers compensation premiums). Direct wage is usually the employees gross pay less any overtime premium. Experience Modification Rate (EMR) The final modified workers compensation premium is determined by multiplying the base premium by the employers EMR. EMRs can range as low as 0.20 for the very safe large employer to as great as 3.00 for the most unsafe employers. The smaller employer EMR is limited on the down side by the calculation formula to about 0.80. In recent times some owners and contractors have adopted the policy of limiting bidders to those who have an EMR below a certain threshold level. Caution is advised in doing this. There are at least 25 different adaptations of the EMR calculation (see Appendix A). One uninformed in the intricacies of EMR determination can easily exclude a safer contractor using such a screening process. (See Appendix A for more on this aspect of EMR.)

Users of EMR should realize that the calculation reflects losses for a three-year period after excluding the most recent year. For a 1993 EMR, losses for 1989,1990, and 1991 are used. Losses for 1992 will not be used until the next determination, when the year 1989 will be dropped. Those individuals who are most effective in using the EMR in screening recognize its limitations. They use it more as a report card for the individual employer, and do not compare safety performance using EMR alone. Other criteria used are the Loss Ratio (explained below) and OSHA/BLS Incidence Rates and the content of the company safety program. The Loss Ratio As an alternative to EMR, some individuals use Loss Ratio, which is simply the contractors total expense of injury (called claims losses) divided by the workers compensation premium paid. This too must be used with caution, particularly with regard to smaller contractors. A smaller contractor with a poor safety record will pay a reduced premium when compared to a larger contractor, thus affecting ones ability to compare safety performance using the Loss Ratio. Using the three most recent years will be a conservative way to calculate it. One should recognize that injuries occurring in the most recent year may not yet be developed sufficiently to accurately reflect their ultimate cost. Loss Ratios can be very low (i.e., LR = 2000/150000 = .0133) to very high (i.e., LR = 450000/ 150000 = 3.00). Very low, of course, is the objective. The Total Cost of Injury for Contractors The task force looked at several potential methods to illustrate the cost savings of preventing worker injury. The method selected is described as follows: Calculate the annual premium using 1. Estimated annual direct* payroll 2. An average manual rate of a group of typical classification codes used by your company 3. Your own EMR 4. Add in the indirects using your own OSHA 200 log information and estimates of the indirect expense associated with injury. For this calculation, the task force used the indirect cost information found by the CII Safety Task Force.

The Workers Compensation Premium Calculation is as follows: (Direct Wages) Base Premium = 100 x Manual Rate

Modified Premium = Base Premium x EMR * Excludes overhead expense and fringes. This procedure is illustrated on the next page for a contractor (see Table 4). An owner cost calculation follows.

Table 4. Contractor Cost Calculation Illustration (Based on Direct Labor) Data Given Company Size Craft Employees-Average = Annual Direct Payroll = Gross Profit & Overhead = 10% Direct Wage per hour = Annual Workhours per Employee = Average Manual Rate = Recordables per year = Lost Workday Cases per year = Indirect Cost per Recordable = Indirect Cost per LW Case = A- Current Experience Modifier (EMR) = B- New EMR after 4 years = Case Calculation Base Premium = Direct Wages x Average Manual Rate % = 2,000,000 x 20% = C- SmC 100,000,000 x 20% = D- LgC Current Modified Premium = C x Current EMR = E- SmC D x Current EMR = F- LgC Small Contractor G- Indirect Costs = (7-3) x $1,100 + 3 x $21,000 = $4,400 + $63,000 = Large Contractor H- Indirect Costs = Small Contractor 50 $2,000,000 $200,000 $20.00 2,000 20% 7 3 $1,100 $21,000 1.20 0.80 Large Contractor 2500 $ 100,000,000 $10,000,000 $20.00 2,000 20% 325 152 $1,100 $21,000 1.20 0.20

$400,000 $20,000,000

$480,000 $24,000,000

$67,400

(325-152) x $1,100 + 152 x $21,000 = $190,300 + $3,192,000 =

$3,382,300

Calculate current cost situation: Total Cost = Modified Premium + Indirect costs = Small Contractor Total Costs = E + G = I$480,000 + $67,400 = Large Contractor Total Costs = F + H = $24,000,000 + $3,282,300 = J-

$547,400

$27,382,300

Table 4 (continued). Contractor Cost Calculation Worksheet

Small Contractor By eliminating injury, this employer can lower the EMR to and eliminate all indirect cost. Increased Profit Calculations Small Contractor K- New Base Premium = C x New EMR $400,000 x 0.80 = L- Plus no indirect costs = M- Total New Cost = K + L = Savings = I - M Savings = New Profit Level = Old Profit + Savings = New Gross Profit & Overhead = Up from 10% to Large Contractor 0- New Base Premium = D x New EMR $20,000,000 x 0.20 = P- Plus no indirect costs = Q- Total New Cost = 0 + P = Savings = J - Q Savings = New Profit Level = Old Profit + Savings = New Gross Profit & Overhead = Up from 10% to J. Q. I. M. 0.80

Large Contractor 0.20

Small Contractor

Large Contractor

$320,000 $320,00 $547,400 -$320,000 $227,400 $200,000 $227,400 $427,400 21.4%

$4,000,000 0 $4,000,000 $27,383,300 -$4,000,000 $23,383,300 $10,000,000 $23,383,300 $33,383,300 33.4%

(Note: The calculations in Table 4 do not reflect the cost of implementing a safety program.)

Table 4 (continued). Contractor Cost Calculation Worksheet Your Company Information Company Size (Employees) = Annual Direct Payroll = Gross Profit and Overhead = Direct Wage per hour = Hours Worked per Employee = Average Manual Rate = Recordables per year = Lost Workday Cases per year = Indirect Cost per Recordable = Indirect Cost per LW Case = Current Experience Modifier (EMR) New EMR Goal after 4 years = Your Calculation Direct Wages = Emp x Hrs x Wage Direct Wages = Base Premium = Direct Wages x Average Manual Rate % = Base Premium = Modified Premium = Premium x Current EMR = Modified Premium = Indirect Costs = (Rec - LWC) x $1,100* + LWC x $21,000 = Indirect Costs = A- Total Cost = Modified Premium + Indirect costs By eliminating injury, you can lower the EMR to Goal and eliminate most indirect cost. B- New Costs = Base Premium x New EMR = Plus smaller indirect costs = Savings = Total Costs (A) - New Costs (B) = Savings = New Profit level = Old Profit + Savings = New Profit Level = or *Use these or your own estimates % A. B.

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The Total Cost of Injury Calculation for Owners Many owners think that someone else pays for a contractors workers compensation insurance and the other costs of worker injury. In fact, all monies spent by a contractor come from owners. As a contractor works less safely, the owners costs are higher. Some owners feel that if they get the lowest bid, then their costs are as low as possible. This assumption is not true if the owner takes the long view. If an owner will work with select safer contractors, then the owners costs will be significantly less. Owners who pay attention to contractor safety experience fewer third-party law suits and have more efficient execution of their work. In so doing, they can lower their construction costs dramatically in the long term. There are millions of dollars at stake, as illustrated in Table 5.

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Table 5. Owner Cost Calculation Two large owners with two separate bidders in a high-cost state.

Two Owners each plan projects totaling Percent Contractor Direct Labor = Approx. Direct Labor = Average Direct Wage = Hours to be worked = Average Workers Compensation (WC) Manual Rate = Base Premium = $150,000,000 x 30% = Owner One EMR of Contractor = Owner One contractor WC Premium = Base Premium x 1.30 = Owner Two EMR of Contractor = Owner Two contractor WC Premium = Base Premium x 0.30 =

$500,000,000 30% $150,000,000 $20.00 7,500,000 30% $45,000,000 1.30 $58,500,000 0.30 $13,500,000

Owner One contractor LW Cases = 229 (Equal to BLS average of 6.1 per 100 Workers) Owner One Medical Cases = 258 (Equal to BLS average of 13.0 recordables less 6.1 LW Cases) Owner Two contractor LW Cases = Owner Two Medical Cases @ 2.0 RIR* = Indirect Cost per LWC = Indirect Cost per Medical Case = Owner One Indirect Costs = 229 x $21,000 + 258 x $1,100 = Total Owner One Costs = Premium + Indirect Costs = $58,500,000 + $5,092,800 = Owner Two Indirect Costs = 75 x $1,100 = Total Owner Two Costs = Premium + Indirects = $13,500,000 + $82,500 = 0 (Zero) 75 $21,000 $1,100 $5,092,800

$63,592,800 $82,500

$13,582,500

Savings by Owner in Case Two = $63,592,800 - $13,582,500 = Owner Two Savings = $50,010,300

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Table 5 (continued). Owners Contractor Injury Cost Worksheet

Construction Volume: Percent Direct Labor: Direct Labor = Volume x Percent % Average Direct Wage: Hours Worked = = Direct Labor/Avg Direct Wage Average Contractor EMR Average Construction Manual Rate Contractor Workers Comp Premium = = Direct Labor x Manual Rate %

$ % $ $

$ $

Contractor Indirect Cost Calculation: Number expected LW Cases (Use Contractors OSHA 200 Log data for most recent year or average of past two or three years and extend by hours to be worked as follows.) A- Number expected LW Cases = (Hours Worked/200,000) x LWCIR* B- Estimated Indirect Cost of LW Case: (Reference: CII Publication SD-62) C- Expected Medical Cases $21,000

= (Hours Worked/200,000) x (RIR* - LWCIR**) =

D- Expected Indirect Cost of Medical Case = $1,100 (Reference: CII Publication SD-62) Indirect Costs = A x B + C x D = $

Total Cost = Expected Premium + Expected Indirect Costs +$ $ = $ * Contractors Recent Recordable Incident Rate ** Contractors Recent Lost Workday Case Incident Rate

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4 The Zero Injury Concept

Why Use Zero Lost Workday Cases? Many examples can be found in the U.S. where millions of hours are worked with no resulting lost workday injuries. This being the case, "Why not set your goal at zero lost workday cases? Research summarized in CII Publication 32-1, Zero Injury Techniques, used 25 construction projects. Eight of these were experiencing zero lost workday cases at the time the research was conducted. The zero lost workday projects ranged in hours worked from 260,000 to 4,900,000. The continual rise in premium rates for workers compensation insurance in many states is alarming. Workers compensation premium rates as a percentage of direct labor are extremely high in the more hazardous industries. In the construction trades, for example, the state trade average rates range from 6 percent to over 35 percent with a national average of 17 percent. In some states, manual rates for selected trades exceed 100 percent of direct labor. Reaching for the goal of zero injuries can provide immediate rewards. One of the problems in eliminating injury is that often the workers simply do not believe management is committed. When management clearly sets forth the expectation for zero, it is only then that the workers can begin to believe that the company is really serious about safety. From the standpoint of worker psychology, zero is the only supportable goal. Any other goal leaves the subtle message that injuries will occur and that injuries are acceptable. All would agree that the importance of the psychological aspects of a safety program are paramount in reducing injury frequency. In attaining zero-injury performance, there is no substitute for the concept of setting and communicating your safety performance expectations for your employees. It should be the ongoing plan of each employer that employees working for them directly or through a subcontractor will know that the expectation is for zero lost time injuries. Quality sought in that the safety goal injuries. In the past embraced the notion safety performance means to insure that employees have a clear knowledge of each employee, each crew, each project, and the corporation is zero five years, many companies that are leaders in safety performance have of zero injuries as a parallel to the quality concept of zero defects.*

Set a Zero Goal for Recordables When implementing a zero goal in safety performance, it is important to sell it to the employees. Employees who have not been working to achieve zero in safety will respond positively to the goal of zero lost workday cases if the goal is communicated properly and thoroughly. Setting even more stringent goals such as zero recordables will tend to drive minor injuries underground (not reported), which is not desirable. Employees are more likely to believe, and hence accept, the fact that a goal of zero lost workday cases is achievable. Once an employer achieves and sustains zero lost workday cases, it then may be appropriate to look carefully at a more stringent goal such as zero recordables. Clear guidelines should be published stating that all injuries must be reported. Employees should clearly understand that the goal is to eliminate injury, not to hide injury for the appearance of reaching zero.

* Philip Crosby, Quality Is Free. 14

It was in recognition of this argument that the task force decided to define Excellence in safety using zero lost workday incident rate. This removes the pressure on reporting the first-aid, nonrecordable injuries which, if forced underground, could become a serious injury. The better ones true safety results become, the lower the recordable rate will be. The New Safety Attitude An employee safety performance mentality of zero injury is a worthy objective. Those setting zero as the lost workday case goal have frequently found that performance will improve as soon as this expectation is communicated to the worker. A significant safety attitude change in the worker comes with the goal of zero injuries. The change results from the knowledge that it is no longer acceptable to take chances. Shortcuts taken because of laziness or even while trying to do an efficient job are no longer welcomed. Praise for shortcuts or chance-taking will not exist. To the contrary, management will praise those not taking chances or shortcuts. Do not allow negative thinkers to deny your employees the positive results of reduced injuries that stem from the zero injury concept. The concept is a socially responsible management attitude toward the ongoing health of a businesss most important asset, the employees. Achieving excellence in safety performance through the zero injury concept is increasing in acceptance as the cultural norm in U.S. companies. More and more owners and contractors are realizing that zero lost workday injury is achievable, and they are taking that first step: telling their employees that zero injury is the expectation.

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Backing It Up Letting the employees know of the zero injury expectation requires another sobering commitment: safety support at the job site through a well-planned safety program. Because an employers overhead for insurance is passed on to the user of the product or service, those who maintain a level of excellence in safety performance have a competitive edge over those less adept in eliminating injury in the workplace. The lower costs arising from improved safety performance will mean more competitive bidding and increased profits. Illustrations of this type safety management can be found in the following documents published by The Business Roundtable: Construction Industry Safety Excellence Awards Program Model for an Owner Safety Process Air Products and Chemicals, Inc. 1988 Owner Award Recipient Construction Industry Safety Excellence Awards Program Model for an Owner Safety Process Monsanto Chemical Company 1989 Owner Award Recipient Construction Industry Safety Excellence Awards Program Model for an Owner Safety Process Shell Oil Company 1990 Owner Award Recipient Construction Industry Safety Excellence Awards Program Model for a Contractor Safety Process Gulf States Inc. 1989 Constructor Award Recipient The above publications are available free of charge by writing: The Business Roundtable 1615 L St. NW Washington, D.C. 20036

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5 Steps To Gain Control

Contractors having a higher than desirable EMR can take a number of steps to reduce the EMR. In addition to setting out to reduce injury frequency, which is vital, a number of other steps will assist the process. First Step: Get With Your Carrier Request a copy of your experience rating form. You may well be the first client who ever asked an insurance agent for this information. At first they may want to defer you by saying that they are doing all they can. They then may want to know just what it is you want. They may be getting an education as you go along. Just repeat your request, explaining what you are looking for and ask them to get the information for you. They may have to call the regional office and get back to you. Second Step: Audit Your Loss Run Obtain a copy of your current injury loss history. In the insurance industry, this is known as a loss run. Audit this information for accuracy and reasonableness of loss reserves on a case by case basis. Review in detail all cases where injured employees are drawing workers compensation wage benefits. Further analyze: Types of injuries Cases that are still open The injured currently working The reserves set aside, and determine if theyre reasonable based on case details The final costs, which should be reflected in each closed case rather than an estimate of the reserves needed. Closed cases need no reserves. Third Step: Review Your Experience Rating Form Review your most recent year Experience Rating Form. This is the information used by the insurance company to calculate your current EMR.
l

Ensure that all losses recorded reflect the latest information regarding injuries. Ensure that you understand how the EMR was calculated and that it accurately reflects the trades involved in your work. Calculate the average cost per disabling injury.

In calculating your average, consider a disabling injury as one where the injured employee drew workers compensation wage replacement benefits (known as indemnity). This average will provide an idea of how much profit will be lost when the next disabling injury occurs. Nothing is more sobering than to know that on the occurrence of the next disabling injury an average of $30,000 to $60,000 will be taken from the bottom line. Your cost will be 30 to 40 percent more than the average when you allow for insurance company expense of handling claims, overhead, and profit.

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Fourth Step: Establish the Zero Goal in Your Company Obtain all the information you can from the CII zero injury research. Have a meeting with your key personnel and explain what needs to be done. Give them the material to read and schedule another meeting to address what new things your company will be needing to do to begin a cultural change. Communicate these new goals to your employees. Fifth Step: Install A Case Management Program When an injury occurs, have a specific plan in place to handle each injury. The starting place is found in the word care. Treat an injured employee just as you would treat a member of your immediate family. 1. Establish a relationship with a local doctor. Express the fact that you care about the injured. Let the doctor know: - That you have insurance. - That you want the best of care. - That you want your employees to be working if they possibly can without jeopardizing their health. - Insure that the doctor is willing to work with you in achieving your objectives. 2. Have a management representative take the injured employee for medical treatment or accompany the injured if an ambulance is used. Inform the family. Stay with the injured, if permissible, as treatment is administered. 3. Understand what any activity restrictions really mean in practical terms and provide alternative productive work for the injured if they are physically able. 4. Insure that the injured adheres to the doctors directives regarding follow-up treatment. Assist in all ways possible. Remember, doctors frequently advise that workers will recover faster by working, even if the work activity is restricted. 5. Be alert to the opportunity for employees in the past to return to work doing a job where their physical impairment will not hamper their ability to do the work. Be careful not to expose the employee to a condition where injury may occur due to the impairment. Many employees would rather be working than drawing only a partial wage from workers compensation. In some cases, employers have recovered millions of dollars in reserves by following this procedure. 6. If an employee cannot return to work, maintain frequent contact with the injured employee and monitor their progress. Sixth Step: Implement the Zero injury Techniques Insure that you are implementing the recommendations in CII Publication 32-1, Zero Injury Techniques.

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6 Recommendations
The Key Management Factors Owners: 1. Adopt a zero injury philosophy. 2. Understand workers compensation in its entirety. 3. Understand EMR and how to interpret it properly. Realize that using EMR cutoff points can omit contractors who have less injuries than those selected. Know that it is not accurate to compare contractor safety performance using EMR. OSHA/BLS recordable rates and loss ratio are more accurate (see Appendix A). 4. Know what your real costs are. Use the worksheets provided in this publication. 5. Start selecting contractors through the use of safety performance criteria: a. Help contractors you use to embrace the zero injury concept. b. Estimate and track the contractor injury expense you are paying. It may be higher than you think. c. Assist contractors on your projects in reaching the zero injury goal. d. Keep safety performance data on all your contractors. e. Set contractor safety prequalification criteria. 6. Require your contractors to use the information in CII Publication 32-1, Zero Injury Techniques. 7. Know that contractors can work much more safely if you actively assist them in managing the project safely. Contractors: 1. Adopt a zero injury philosophy. 2. Understand workers compensation in its entirety. 3. Understand EMR and how to interpret it properly. 4. Know what your real costs are. Use the worksheets provided in this publication. 5. Keep safety performance data on all your subcontractors. See CII Publication 13-1, Managing Subcontractor Safety. a. Help the subcontractors embrace the zero injury concept. b. Estimate and track the subcontractor injury expense you are paying. It is probably higher than you think. c. Assist subcontractors on your project in reaching the zero injury goal. d. Keep safety performance data on all subcontractors. e. Set subcontractor safety pre-qualification criteria. 6. Use the information in the CII Publication 32-1, Zero Injury Techniques.

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Summary Zero injury performance is achievable. Owners, contractors, and labor representatives must establish and maintain an expectation that all injury can be eliminated. The safety techniques revealed in CII Publication 32-1, Zero Injury Techniques, are of vital importance. Those seeking to understand the economics of safety should embrace the zero injury techniques. These techniques provide the critical methodology needed to eliminate the human suffering caused by injury as well as the unnecessary part of the safety expense that is depleting a firms profit.

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Appendix A The Variations of Experience Modification

Experience Modification Rate (EMR) is a Workers Compensation tool used in all 50 states and the District of Columbia (and Canadian Provinces) to adjust an employers base Workers Compensation premium. The EMR ranges from as low as 20 percent for large employers who are very successful in eliminating injury, to rates of 300 percent and higher for employers who are not making successful efforts to eliminate injury. Some states limit by statute the range the EMR may take, both low and high, to the general range of 0.60 low to 1.40 high. There are three basic processes used to calculate EMR, and these multiply into at least 20 different approaches to the determination of an employers EMR. Taking into account other differences in how EMR can be determined, for example, in instances where an employer is selfinsured, one can add at least five more possible methods. Methods or Processes: Interstate Intrastate Monopolistic Insured New Company Subsidiary Total 31 States 13 States 6 States 1 method 13 methods 6 methods 3 methods 1 method 1 method 25 different methods

In self-insurance situations, an employers EMR will be employer specific. There are at least three types of self-insurance situations. One, the employer owns an insurance company as a subsidiary. Two, the employer hires an insurance company to handle the management of the cases and reimburses them with a cost plus fee payment. Three, the employer manages all the workers compensation paper work and payments in-house. In the latter case, the employer may not have an available pre-calculated EMR. This situation can be verified by calling the subject states workers compensation rating division. There also is the situation where a new company has been formed or an acquisition has occurred, resulting in new ownership and management. In these cases, the EMR will frequently become an automatic 1.00 by state law. Past safety performance, good or bad, has no bearing on the setting of the new EMR at 1.00. Some states carefully review such new ownership applications to insure the reorganization is not simply a ploy to lower high insurance costs caused by poor safety performance. In the case where an employer is a subsidiary of a larger corporation, the EMR of the subsidiary will typically become that of the larger corporation. This holds true even though the subsidiary may have a superior stand alone safety record or vice versa. In buying insurance coverage, six states have agencies that operate as the sole source of workers compensation insurance. These states are termed monopolistic since they do not allow competition. In another 13 states, an employer is allowed the choice of purchasing its insurance from the state fund or from one of a number of insurance companies licensed to do business in the state. All remaining states use only insurance companies to cover the workers compensation

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insurance needs. These 32 states are known as the National Council on Compensation Insurance (NCCI) group. NCCI is an industry group of insurance companies that assists states in rate setting and workers compensation management. The District of Columbia is also in this group. In a few states, writing workers compensation insurance profitably has become so difficult that most employers are forced into an assigned risk pool. Pools are used to counteract the inability of the state process to collect sufficient premiums to keep up with the losses in insuring the workplace.

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Appendix B Manual Rate Information

Explaining The Manual Rate Information There are dozens of construction trades and many possible combinations. The task force selected 12 typical construction trades common to commercial and industrial construction. The manual rates for these 12 trades were acquired for each of the 50 states and the District of Columbia. All rates except those of the six monopolistic states were obtained by Shell Oil Company from CIGNA through Marsh & McLennan, Insurance Brokers. The rates for the monopolistic states were obtained by the task force directly from each state. The State of Washington manual rates, which are per work-hour, can be converted to a $100 base using this formula: $100 rate = (100/average wage) x hourly manual rate The 12 trades used and the three-letter abbreviations appearing on the charts are as follows: PLD - Pile Drivers BLR - Boiler Erection or Repair SME - Sheet Metal Erection CCC - Concrete Construction SLE - Steel Erection CDT - Electric Conduit Installation SLF - Steel Fabrication INS - Boiler & Pipe Insulation MRT - Millwright, Setting machinery SWR - Sewer Installation WLD - Welding & Cutting PVC- Street and Other Paving Effective - 3/1/93 State Manual Rates in Alphabetical Order 1/93 effective date --> 12/92 AK AL 21.81 18.57 Avg-> 6.12 11.99 INS 10.80 10.30 BMK 15.73 13.25 MRT 21.39 8.85 CDT 9.21 20.62 SME 11.93 12.05 PAV 13.06 21.90 SLF 25.02 11.97 SWR 15.79 13.33 WLD 15.96 12.05 CCC 60.33 46.06 PLD 39.14 57.72 SLE AL AK 10/92 AZ 19.40 9.95 13.29 13.12 14.59 19.46 12.98 17.34 19.16 28.83 22.08 34.09 27.96 AZ 1/93 AR 13.96 6.35 9.00 11.21 9.47 11.62 7.31 11.50 15.52 10.18 21.37 22.41 31.54 AR 7/92 CA 16.98 12.37 14.02 12.49 10.95 16.36 12.33 19.25 14.00 23.43 14.06 22.60 31.91 CA 6/90 CO 21.57 14.50 13.88 11.49 15.51 12.54 16.74 22.84 19.90 25.45 20.96 41.53 43.49 CO 8/92 CT 24.40 15.84 14.24 19.24 11.28 20.74 24.20 41.09 29.14 13.90 24.87 29.46 48.74 CT 2/93 DC 28.84 21.50 21.86 6.66 21.02 14.97 21.13 23.60 16.20 22.69 36.10 67.55 72.83 DC 5/92 DE 12.99 6.75 12.16 8.31 11.91 11.62 15.28 15.51 16.93 5.43 12.01 12.24 27.74 DE

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State Manual Rates in Alphabetical Order (continued) 1/93 FL 30.58 15.74 19.53 18.67 25.95 24.33 25.45 20.02 21.23 39.80 39.71 65.93 50.55 FL 9/91 GA 18.96 7.17 11.71 11.82 18.14 12.27 15.46 16.64 18.59 22.54 15.21 35.52 42.47 GA 12/92 1/93 1/93 ID IL HI 18.24 13.19 28.65 6.88 8.04 15.65 12.34 10.10 13.79 8.46 21.15 10.01 11.65 11.63 18.66 10.67 12.42 18.72 11.77 6.57 15.97 19.68 11.37 20.16 21.19 10.63 16.27 25.93 13.05 23.10 17.87 19.33 34.47 36.50 23.34 43.32 34.43 23.35 102.58 HI ID IL 5/92 1/92 IA IN 7.49 11.96 2.93 7.14 3.70 10.37 6.00 12.12 8.21 6.49 5.35 8.24 5.73 9.12 5.02 8.50 8.33 9.23 5.05 8.97 7.49 18.04 13.45 20.24 17.70 25.97 IA IN 6/92 KS 14.84 7.78 7.23 13.08 11.13 10.63 9.30 12.27 10.98 14.71 21.16 23.80 35.99 KS 1/92 KY 19.72 9.77 11.27 13.39 18.98 14.47 17.33 17.10 18.91 19.21 18.47 39.99 37.70 KY

Avg-> INS BMK MRT CDT SME PAV SLF SWR WLD CCC PLD SLE

State Manual Rates in Alphabetical Order (continued) 12/92 7/92 1/93 1/91 LA ME MD MA 21.88 22.69 8.98 25.68 11.12 11.85 4.88 10.89 12.08 13.15 5.18 14.08 13.10 24.91 3.69 13.73 12.10 13.52 7.41 20.48 18.36 17.70 6.04 18.18 22.28 11.70 6.15 29.25 24.61 18.26 7.82 23.71 22.20 13.64 4.46 16.18 29.49 30.70 7.65 22.49 24.29 14.37 38.80 17.95 46.79 31.44 12.51 35.19 31.78 61.81 27.63 65.15 LA ME MD MA 1/92 10/92 Ml MN 24.82 30.96 9.69 16.84 14.82 11.79 15.33 26.78 22.97 19.21 13.26 15.39 25.24 20.42 15.92 27.72 20.45 34.65 13.43 22.54 26.00 37.88 26.00 51.27 94.68 87.00 Ml MN 9/92 9/92 MS MO 14.06 11.41 7.27 5.76 5.39 8.03 8.62 10.54 8.28 9.05 12.69 9.05 12.30 8.97 10.08 13.22 12.12 8.84 25.96 9.00 15.74 12.43 32.55 20.08 17.68 21.91 MS MO 7/92 MT 36.85 23.65 26.56 33.99 26.73 19.63 41.18 22.88 27.32 28.30 38.25 69.09 84.62 MT

Avg-> INS BMK MRT CDT SME PAV SLF SWR WLD CCC PLD SLE

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State Manual Rates in Alphabetical Order (continued) 7/92 NE 13.01 6.84 8.69 8.19 10.32 13.23 7.59 6.16 10.27 10.43 17.63 23.09 33.72 NE 1992 NV 15.61 11.30 15.93 14.74 10.14 32.15 10.27 15.43 11.28 14.46 12.32 9.84 29.41 NV 12/92 NH 20.32 9.60 21.28 16.62 18.59 15.89 14.65 15.77 10.07 18.82 25.25 46.91 30.34 NH 1/92 NJ 8.38 3.95 6.54 5.57 6.85 4.77 7.57 11.04 11.98 9.90 7.57 13.28 11.54 NJ 7/92 11/91 NY NM 23.22 20.69 12.57 12.64 8.76 15.65 14.22 14.08 15.70 13.88 13.75 20.22 13.53 19.69 29.37 30.37 22.99 13.75 23.45 22.73 34.78 15.83 49.29 31.41 37.85 37.99 NY NM 1/92 NC 8.20 5.90 4.91 6.89 6.59 7.54 6.17 6.88 6.84 12.90 8.39 14.40 11.00 NC 1992 ND 14.65 9.03 11.73 9.03 4.95 27.61 9.95 8.34 20.66 5.48 13.77 27.61 27.61 ND 1992 OH 10.82 6.09 3.32 17.24 4.41 18.87 11.25 10.96 11.25 12.74 11.25 11.25 11.25 OH

Avg-> INS BMK MRT CDT SME PAV SLF SWR WLD CCC PLD SLE

State Manual Rates in Alphabetical Order (continued) 9/92 OK 19.80 8.63 9.88 12.75 23.92 11.98 17.74 14.51 17.94 16.40 15.48 38.57 49.74 OK 1/93 OR 22.08 11.18 9.78 16.74 22.06 13.07 13.34 16.80 22.51 25.70 26.91 36.59 50.22 OR 12/92 1/93 PA RI 21.81 18.31 11.57 5.85 14.76 15.02 13.60 8.68 15.65 14.74 14.07 8.48 27.51 12.43 16.26 23.38 21.11 15.72 7.69 16.19 28.28 16.58 32.12 33.30 59.05 49.31 PA RI 8/92 1/93 6/92 TN SC SD 13.60 12.88 13.62 6.39 10.24 7.18 6.95 7.53 6.54 12.68 7.97 9.60 7.73 9.97 9.77 10.96 8.72 10.89 14.50 12.37 11.40 9.03 8.58 13.93 13.47 18.46 14.85 15.79 10.87 15.83 13.50 12.32 12.44 19.41 25.35 26.26 32.73 23.34 23.53 SC TN SD 5/92 TX 27.05 14.81 20.46 15.49 24.59 26.36 27.14 22.53 30.47 27.17 29.43 50.50 35.66 TX 1/92 UT 10.91 6.41 10.35 6.95 8.09 6.30 7.01 7.08 10.62 9.63 17.68 17.24 23.51 UT

Avg-> INS BMK MRT CDT SME PAV SLF SWR WLD CCC PLD SLE

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State Manual Rates in Alphabetical Order (continued) 8/92 VT 14.62 7.48 7.63 13.31 8.95 11.03 7.07 11.42 11.79 12.71 25.99 25.34 32.77 VT 9/92 VA 9.35 5.72 3.81 6.06 5.27 9.00 5.97 8.42 5.23 11.82 11.27 18.70 20.88 VA 1992 1992 7/92 1992 WA* WV WI WY 6.96 1.88 7.94 14.27 1.44 7.52 7.28 5.33 1.44 9.57 8.53 6.33 7.28 1.00 5.01 9.97 0.96 7.28 5.01 10.73 2.77 6.25 8.98 6.33 2.09 10.58 9.22 6.33 1.56 7.28 5.52 8.60 6.33 1.81 8.38 11.45 0.69 9.10 7.28 4.83 2.04 13.85 14.98 7.28 3.93 7.28 8.95 38.54 2.77 12.04 33.67 7.28 WA* WV WI WY *Rates are in $ /Hour

Avg-> INS BMK MRT CDT SME PAV SLF SWR WLD CCC PLD SLE

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Appendix C Industry Cost Calculations for U. S. Industry

The following was the calculation made to obtain the numbers quoted in Chapter 1, page 3. Calculation: Workers = 5,900,OOO 1991 Recordable Incidence Rate (RIR) = 13.0 per 100 workers (w) 1991 Lost Workday Case Incident rate (LWCIR) = 6.1 per 100 w Direct Cost per LWC = $26,000 (NSC) Indirect Cost per LWC = $21,000 (CII) Cost per Recordable (Direct & Indirect) = $1100 (CII) Total Cost = ((5,900,000/100) x (26,000+21,000) x 6.1) +(13.0-6.1) x $1,100) x (5,900,000/100) = $17,000,000,000

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Notes

28

Notes

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Zero Accidents Task Force Membership

Robert C. Alton, James River Corporation Michael J. Bachynsky, FMC Corporation Richard A. Bair, Chevron Corporation Scott Bechtel, Monsanto Chemical Group James Bryce, Cianbro Corporation T. F. Crangle, Tennessee Valley Authority C. Raymond Hays, Rust International Corporation Roger Liska, Clemson University George Lodge, Turner Construction Company Michael J. Moore, BE&K Construction Company * Emmitt J. Nelson, Shell Oil Company (retired), Chairman R. Steven Ray, The M.W. Kellogg Company C. J. Rothkamm, AMEC Holdings, Inc. J. W. Savage, Stone & Webster Engineering Company Robert Slaughter, John Brown E&C Maxie Wynn, Texaco, Inc.

* Principal Author Editor: Rusty Haggard

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Member Companies AT&T Aluminum Company of America American Cyanamid Company Amoco Corporation Anheuser-Busch Companies, Inc. Aramco Services Company Atlantic Richfield Company BP Oil Company Chevron Corporation Consolidated Edison Company of N.Y., Inc. Dow Chemical USA DuPont Eastman Chemical Elf Atochem North America, Inc. Eli Lilly and Company Exxon Research and Engineering Company FMC Corporation General Electric Company Glaxo Inc. Hoechst Celanese Corporation Hoffmann-LaRoche, Inc. Houston Lighting & Power ICI Americas Inc. International Paper Company Lever Brothers Company Merck & Co., Inc. Mobil Corporation Monsanto Company Naval Facilities Engineering Command Northern States Power Company Ontario Hydro Phillips Petroleum Company The Procter & Gamble Company Rohm and Haas Company Shell Oil Company Southwestern Bell Telephone Tennessee Valley Authority Texaco Inc. U. S. Department of Defense U. S. Department of State Union Carbide Corporation Weyerhaeuser Company

ABB CE Services, Inc. ABB Lummus Crest Inc. AMEC Holdings, Inc. Guy F. Atkinson Company of California BE&K Construction Company The Badger Company, Inc. Bechtel Group, Inc. Belcan Engineering Services, Inc. Black & Veatch Engineers-Architects Bovis, Inc. Brown & Root, Inc. John Brown E&C Burns and Roe Enterprises, Inc. CRS Sirrine Engineers, Inc. CUH2A Architects/Engineers/Planners Cherne Contracting Corporation Cianbro Corporation Day & Zimmermann, Inc. Dillingham Construction Holdings Inc. Ebasco Constructors Inc. Eichleay Holdings Inc. Fletcher Construction Company, Ltd. Fluor Daniel, Inc. Ford, Bacon & Davis, Inc. Foster Wheeler Constructors, Inc. Fru-Con Corporation Gilbane Building Company Gilbert/Commonwealth, Inc. Graycor, Inc. Gulf States, Inc. Huber, Hunt & Nichols, Inc. International Technology Corporation Jacobs Engineering Group, Inc. J. A. Jones Construction Co. The M.W. Kellogg Company Kiewit Industrial Group, Inc. Litwin Engineers & Constuctors, Inc. Marshall Contractors Inc. Morrison Knudsen Corporation North Bros. Company The Parsons Corporation Rust International Corporation S&B Engineers and Constructors Inc. Sargent Electric Company Sargent & Lundy Engineers Sordoni Skanska Construction Company Stone & Webster Engineering Corp. Sverdrup Corporation Torcon, Inc. Turner Construction Company United Engineers & Constructors International Woodward-Clyde Consultants H. B. Zachry Company