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LOS ANGELES-Taking aim at construction safety bonuses paid out by the Los Angeles County Metropolitan Transportation Authority, a new state law will force the beleaguered agency to provide a broader picture of worker injuries.
But the new state law, which takes effect Jan. 1, may miss the mark completely, risk managers and insurers say.
Companies are moving away from safety bonuses because they detract from the message that safety is a basic requirement, not an extra effort to be rewarded, they say.
Instead, risk managers' loss prevention strategies include: maintaining strict control of safety programs, holding construction companies to contracts requiring specific safety performance, and even using a stick approach by penalizing contractors when they don't measure up.
Los Angeles County's MTA has faced a constant barrage of scrutiny and criticism for losses resulting from its $6.1 billion subway project (BI, Feb. 24).
California lawmakers have been perplexed by various newspaper accounts that reported subway contractors were earning millions of dollars in safety bonuses while the project was experiencing a rate of injury higher than the national average, when measured by OSHA 200 Case Rate, or OCR, reportable injury standards.
The agency, however, bases its safety bonus calculations on the project's Lost Time Case Rate. For the MTA, that LTCR rate has been lower than the national average.
A 1996 U.S. Congressional report found that the MTA did not differ from other transit agencies in having a discrepancy between OCR and LTCR rates. It also found that several other transit agencies assess bonuses and penalties by evaluating lost time injury rate.
Nonetheless, legislation authored by Sen. Tom Hayden, D-Los Angeles, and signed Oct. 6 by Gov. Pete Wilson will require the MTA to base contractors' bonuses entirely on OCR evaluations instead of using a formula based on lost time rates. That mandate came as an amendment to legislation imposing a $10 limit on campaign contributions to MTA board members, because it was found that the agency's policy-making and award process are heavily influenced by lobbyists, according to legislative findings.
Ironically, in the third fatality of the year related to MTA construction, a subway construction worker was killed at an MTA site Oct. 8, just two days after Gov. Wilson signed the legislation.
Commenting on the trend away from using safety bonuses, a spokesman for Sen. Hayden said the law is not aimed at improving safety conditions as much as it is intended to stop bonus payments when accidents are still occurring on MTA job sites.
An MTA spokesman said the agency had not yet reviewed the legislation's implications, and officials did not respond to a letter containing several questions.
According to the congressional report and safety experts, OCR does provide a broader basis for assessing potential safety problems on a job site than does LTCR.
However, when it comes to paying safety bonuses, relying on the frequency of claims captured by OCR may be flawed, because frequency may not be as important as the severity of injuries, which may be reflected in LTCR rates. Experts point out that a few high-dollar losses can be more devastating than numerous minor injuries.
"If you are using incidence rates, whether for all accidents or lost-time accidents, you are not talking dollars and cents," said Larry Pippin, vp of construction insurance for Argonaut Insurance Co. in Menlo Park, Calif. "If you don't talk dollars-which contractors don't want to do, they would much rather talk incidence rates-there is always going to be a good possibility that they will get a reward for poor performance whether you are looking at lost-time cases or overall cases."
There have always been differing philosophies on the issue, said Mr. Pippin. It usually comes down to management style, and Argonaut, which insures numerous large construction projects nationwide, designs its programs according to customer preferences.
But more often today, owners of wrap-up insurance programs are saying they should not pay construction companies additional money just to get contractors to do their jobs without excessive injuries.
Paying out safety bonuses is "kind of foolish," because the policyholder is paying for the program and, ultimately, all the claims, said Tracy Pluff, chief safety officer for the Metropolitan Atlanta Rapid Transit Authority.
"Personally, I believe we get the best results when we don't do incentives, because once you do incentives, it becomes the safety program," according to Mr. Pippin.
"Incentives are considered to be short-term solutions. But they become ingrained, and if you ever pull those things away, or there is not enough money to continue them, then all of a sudden your program lacks emphasis," he noted.
Increasingly, contracts with construction companies are treating accountability for safety similar to productivity and cost expectations. Just as contractors must have projects completed by certain dates at certain costs and meet certain construction standards, they also must meet specific safety standards.
More parties are "holding the contractor to a standard" spelled out in the contract. "Then if they don't do what is in the contract, find them in violation of their contract and proceed against them accordingly," Mr. Pippin said.
In some instances, such as under retro plans, policyholders will share with their contractors savings resulting from adherence to safety standards, Mr. Pippin said. But in the same contracts, risk managers are also obligating contractors to forfeit some pay if their safety records do not measure up. Loss ratios or incidence rates can be used to set those standards.
"We are seeing that more and more," Mr. Pippin said. "It offers them the carrot and the penalty."
Risk managers also are loading their contracts with other safety demands out of a feeling that they really have to push construction companies to live up to safety requirements.
In Atlanta, MARTA requires every individual contractor to have either a full-time safety engineer or a part-time safety supervisor on the job, depending on various factors, such as contract dollar amount and the type of project, Mr. Pluff said. If MARTA does not approve of the job performance by the contractor's safety staff, MARTA can have the contractor replaced.
"The contractors know we stay on top of them," Mr. Pluff said. "We control safety, and that has worked for us so far."
Contractors also must agree to weekly construction progress meetings that include safety discussions. If MARTA's own safety personnel witness an extremely hazardous situation, they can immediately shut down a project.
"Contractors always say: 'Fine, shut us down. We are going to put a claim in to you for lost time,' " Mr. Pluff said. "Well, our contract is worded so you can't do that."
When the Port of Los Angeles in 1994 began the $585 million construction of container facilities and railroad lines, Risk Manager Samuel Williams had to obtain an exception to state law prohibiting some public agencies from using a wrap-up insurance program. Once he got the go-ahead, the port decided not to pay safety bonuses to construction companies. Instead it reached out to the contractors' workers directly by providing them with lunch-time barbecues and safety awards, such as lunch boxes.
Contracts are also strict, Mr. Williams said. Contractors are required to employ safety staff and comply with safety standards the port sets.
The project is now about two months from completion, and Mr. Williams measures his program's success by the amount of workers compensation premium that has gone to pay for claims. So far 37% of premium paid to American International Group Inc. has gone to that end. His goal when he started the project was to keep that level at 40% or less.