Using Contract Specifications to Build Leverage

OHS measures should be a significant component of contracts because it is good business practice.

Occupational health and safety (OHS) professionals are always looking for ways to influence decision-makers to invest in implementation of hazard controls.

The leverage afforded OHS professionals by the threat of OSHA citations is inadequate due to infrequent inspections, relatively minor penalties and the lag in adoption of new OSHA standards. Additional leverage is afforded by the full cost accounting of civil liability and production losses caused by OHS underperformance. In my experience, however, it has been long evident that a powerful, yet underused, leverage issue is contract specifications.

There are at least three components of the contract specifications issue that may be of concern to a company:

  • Specifications that must be addressed for a company to be eligible to bid on a contract;
  • Selection criteria to be considered in awarding the contract; and
  • Specifications created to define performance deliverables and pay items within the contract.

Significant leverage may be afforded OHS professionals when they include safety and health performance measures in some or all of these components of contract specifications.

Private Sector

Clearly, there are incentives for the private sector to address OHS components in its contracting regime. Some companies are addressing this issue on a worldwide basis in their contracting codes. A good example of this is Intel, which has an extensive database showing that its exemplary contracting system has measurable, positive OHS results.

An approach to this issue may be through the bidding process itself. Dr. James W. Platner, CIH, of the Center to Protect Workers' Rights says: "It is the nature of the 'lowest bid process' that often creates disincentives for compliance even if OHS specifications are included in the contract. There is a clear financial incentive to work as cheaply as possible. Poor [OHS performance] does not affect the probability of being awarded the next bid because it will also be awarded based strictly on the lowest bid."

Owners and the public, Platner said, often fail to recognize that the "lowest bid" does not typically reflect the total cost of a project. Additional costs are associated with change orders, legal claims, production delays, late completion, liability from public risks, reduced value or use-life due to poor-quality work, property damage or injuries to workers on multiemployer sites, etc. "The total cost of a contract," he added, "may even include medical costs, disability costs, lost tax income and public assistance for injured workers and their families."

Performance-based bidding awards contracts based on the bid and a weighted score of past performance, Platner said. Scores in this system for all bidders can be made public to ensure an open and honest award process. A database is created of past performance for contractors (for example, see the state of Hawaii's performance-based procurement effort at www.state.hi.us/dot/business.htm) and updated with each new contract. This, in turn, determines the weighting of future bids. "Unfortunately," he added, "few such systems include [OHS] criteria."

Public Sector

Clearly, benefits would be derived from such changes in the public sector contracting code and systems used in the private sector. Although several states and municipalities are experimenting with more responsive bidding systems, for the public sector, this is a subject area fraught with difficulties and questions. I have posed such questions (with my suggested answers in parentheses):

  • Which performance measures would be used in such contract specifications? (unknown)
  • Would absolute values be used (no), relative performance of bidders (perhaps) or performance relative to some standard based on statistical analysis of injury and illness data within an SIC code (yes)?
  • What measure would be used to determine the contract advantage, and how big would the advantage be (0.1 percent, 1 percent, etc.)? (unknown, but a small advantage may be adequate to improve performance)
  • Would the advantage be the same for small, medium and large companies? (greater advantage for smaller companies)
  • Should VPP sites be given automatic eligibility for such advantages? (yes)

Lingering Issues

If OHS performance measures are used as a component of contract specifications, is the customer more or less liable for injuries and illnesses? Is the government spending extra tax dollars by denying the lowest bid? Is the use of OHS metrics an unwarranted burden on small- and medium-sized enterprises? Are we creating a "blacklist" that is illegal, undesirable or politically untenable?

These, and other such questions, have and will make it difficult to make real progress on this laudable goal. Professional membership associations, such as AIHA and ASSE, and nongovernmental organizations, however, may be able to make a contribution in this area. Contributions may be technical, such as using guidance documents and suggested contracting templates. We may also be able to make a contribution in the public policy arena through advocacy positions based on sound science.

There is a saying: "Minimum force, applied at a cusp moment at the historical fulcrum, paves the path to a distant vision." The vision is a public and private contracting code that includes OHS measures as a significant component and is good business practice. Whether or not you like the metaphor, it may apply to this issue. It is time to take action.

Contributing editor Steven P. Levine, Ph.D., CIH2, is president of the American Industrial Hygiene Association. He is a professor of environmental health sciences and co-director of the University of Michigan WHO Collaborating Center for Occupational Health.

Thanks to Greg Bear for the "minimum force" quotation. This column is the opinion of Steven P. Levine and is not necessarily the opinion of AIHA nor its board of directors.

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