FINANCIAL AND SOCIAL COSTS OF CONSTRUCTION ACCIDENTS

Transcription

1 FINANCIAL AND SOCIAL COSTS OF CONSTRUCTION ACCIDENTS Tang, S.L. Civil and Structural Engineering Department, The Hong Kong Polytechnic University, Hunghom, Kowloon, Hong Kong Introduction In Hong Kong, the construction industry, especially for building projects, has a very poor safety record (Lee, 1991). The number of construction accidents is consistently at a very high level (Hong Kong Government, 1995). It accounted for more than one third of all industrial accidents and most fatalities in industrial accidents occurred in the construction industry. There is a general consensus that construction contractors should increase their safety investment in their construction projects. The higher the safety investment is, the better the safety performance will be. However, the extent of the investment is always a major concern. Recent research has revealed that in Hong Kong, most contractors set aside an amount of less than 0.5%, and some even less than 0.25% of the contract sum for investing in safety for their contracts (Lai, 1995). But is that enough? Safety investments cannot be limitless. A methodology has been developed in a study (Tang, Lee and Wong, 1997) to quantify the minimum amount of safety investment for a building project. In that research, only financial costs of construction accidents have been considered. The social costs have not been included. The next section of this paper will discuss only the financial costs and the results of the said research. After that, a section will follow which describes the social costs of construction accidents. Financial Costs of Construction Accidents What Are Financial Costs? Financial costs of construction accidents represent the losses incurred by the private investors, such as contractors, due to the occurrence of construction site accidents. In financial analysis, market prices are always used to represent benefits and costs (Tang, 1996). There are a number of studies concerning accident costs (e.g. Heinrich et al, 1980; Lee, 1991; Levitt and Samelson, 1993). The following financial losses were used in the research carried out by Tang, Lee and Wong 1997): (a) Loss due to the injured person - The compensation paid to the injured worker by the contractor is 2/3 of the wage of the injured person for each day of absence from work. - Disability compensation, which depends on the percentage of disability (determined by a registered doctor) that the injured worker suffers. (b) Loss due to the inefficiency of the worker who just recovered from injury upon resuming work - When the injured worker returns to work, he cannot initially work with 100% efficiency - A formula to calculate the loss: Loss = Wage of injured worker (Day loss 1/10 + % of disability) (c) Loss due to medical expenses - Medical expenses of the injured worker, including the cost of transport to hospital (d) Loss due to fines and legal expenses - If the contractor faces prosecution, he may have to pay the solicitor s fees and fines imposed by the court. (e) Loss of productivity of other employees - The safety officer, site agent, site engineer and the foremen may be involved in assisting the injured and carry out works relating to the accident such as accident investigation and accident report writing. - Other workers may have to stop work immediately after the occurrence of the accident - Loss assumptions (based on the experience of site safety staff interviewed): (1) Site agent: 0.05 day (2) Site engineer: 0.05 day (3) Foreman: 0.25 day (4) Other workers: 0.25 day for each worker and on average 4 other workers are involved in each 213

2 accident (f) Loss due to damaged equipment or plant (g) Loss due to damaged material or finished work (h) Loss due to idle machinery or equipment - After the accident occurred, the workers may stop work temporarily and hence there will be idle machinery or equipment - Loss formula is based on the assumption that 20% of the contract sum is attributable to plant and equipment and that 2% of the plant and equipment will be idle on the day of accident: Loss = Contract sum 20% 2% Number of working days of the contract Figure 1 was the questionnaire the researchers used to acquire the financial costs of accident from contractors. Readers should note that insurance premium, particularly the additional premium paid to the insurance company by a contractor when his safety record is poor, represents financial cost. This is, however, extremely difficult to quantify and therefore is not considered in the research. This is obviously a drawback. The insurance payment, together with fines imposed by the court, however, are financial costs only and not social costs. This will be further discussed in section 3.1. Accident costs and safety performance The total costs of accidents on a construction site depend greatly on project safety performance. If the safety performance is good, the accident costs will be low and vice versa. In order to compare site accident costs of projects of different contract sums and carried out at different time (so that no inflation adjustment is necessary), the Accident Loss Ratio (ALR), a dimensionless quantity, is defined as follows: ALR = TC Contract Sum 100% where TC is the total costs of site accidents in a project. The assumed general shape of an ALR versus safety performance curve is shown in Figure

3 Cost items arising from each accident 1. Injured person (Job nature: ) - Day loss days - Amount of compensation HK$ - % of disability % - Disability compensation HK$ 2. Loss from injured person (after resuming work) - Day loss ( 1/10 + % of disability 100) days - Equivalent loss HK$ 3. Medical services and expenses - Hospitalization / medical expenses HK$ - Others HK$ 4. Fines and legal expenses - Fine by court and solicitor fees HK$ - Others (e.g. transportation costs, etc.) HK$ 5. Lost time of other employees (time taken by other employees in assisting the injured person) Post Monthly wages Time incurred Amount - Site Agent HK$ days HK$ - Site Engineer HK$ days HK$ - Site Foreman HK$ days HK$ * Other Labourers HK$ 6. Equipment or plant loss - Damaged / replacement cost HK$ - Repairing cost HK$ - Others HK$ Fig. 1 Financial Losses of Each Site Accident 7. Damaged material or finished work - Cost of damaged material HK$ - Cost of damaged finished work HK$ - Others HK$ Figure 1 Financial Losses of Each Site Accident 215

4 Figure 2 Accident loss ratio (ALR) versus safety performance Safety investment Safety investment is aimed at protecting the health and physical integrity of workers and the material assets of the contractor. Safety investment consists of the following 3 components: (a) Safety administration personnel - Site staff and head office staff: according to Hong Kong law, a contractor has to employ safety officers and safety supervisors on site to monitor safety-related matters - Some large contractors will also employ safety managers / senior safety officers to direct and coordinate site safety staff - The salary of these personnel and their supporting staff (e.g. clerks, typists) are part of the safety investment (b) Safety equipment - Purchasing of safety boots, goggles, helmets, safety fences, first-aid facilities, etc which are related to the provision of safety on site (c) Safety training and promotion - Safety training courses are organized by contractors for their employees - Safety promotion includes the printing of pamphlets and posters, the production of safety advertising banners and boards, organization of safety campaign and monetary rewarding of individual workers who achieve a good safety standard of work, etc. 216

5 Figure 3 was the questionnaire used by the researchers to acquire information on safety investment. Safety investment on each project 1. Investment on safety administration personnel 1.1 On-site module Post Number Monthly wages - Safety supervisor ( ) HK$ - Safety officer ( ) HK$ - Secretary/typist/clerk ( ) HK$ - Others ( ) HK$ 1.2 Head office module (please fill in monthly wages on pro rata according to no. of projects supervised in the same period) Post Number Monthly wages - Safety manager ( ) HK$ - Chief safety officer ( ) HK$ - Senior safety officer ( ) HK$ - Secretary/typist/clerk ( ) HK$ - Others ( ) HK$ 2. Safety equipment investment on the project 2.1 Safety equipment investment HK$ 3. Safety training cost 3.1 Safety training cost HK$ 4. Safety promotion cost 4.1 Safety promotion cost HK$ Figure 3 Safety Investment on Each Site/Project Safety investment and performance The safety performance of a construction site varies with the amount of safety investment in the project. The higher the safety investment, the better the safety performance will be, and vice versa. As for ALR, safety investments on projects of different sizes and of different times can be compared if a dimensionless quantity, the Safety Investment Ratio (SIR) is used. SIR is defined as follows: SIR = TSI Contract Sum 100% where TSI is the total safety investment in a project. 217

6 Figure 4 shows the assumed shape of an SIR versus safety performance curve. Figure 4 Safety investment ratio (SIR) versus safety performance ALR and SIR curves combined If the two curves in Figures 2 and 4 are combined, a third curve of total costs ratio (i.e. ALR + SIR) versus safety performance can be obtained. This curve will have a minimum point, as shown in Figure 5, which corresponds to the optimal safety investment of a construction project. Figure 5 Total costs ratio (ALR + SIR) versus safety performance 218

7 Accident occurrence index Accident Occurrence Index (AOI) is used to measure safety performance. It is defined as follows: AOI = Total equivalent day loss Total man-days required of the project n where Total equivalent day loss = Σ Equivalent day loss of an accident, i=1 where n is the total number of accidents in a project, and Equivalent day loss of an accident = Day loss + (20 % disability) For example, if a worker is injured in an accident, has been absent for 30 days, and is certified by a doctor to be of 2% permanent disability as a result of the accident, then the equivalent day loss will 70 days ( ). The maximum percentage of disability is 100. Twenty times 100 is 2,000, and this means that the equivalent day loss for a case of 100% disability is 2,000 days. A worker in Hong Kong earns an average of HK$600 a day, and the compensation for a fatality is HK$ 1,200,000. This is consistent with the current compensation practice if a factor 20 is assumed. The factor 20 will be changed for calculating equivalent day loss if the compensation policy is changed or if the average daily wage of labourers in Hong Kong is changed. Note that the equivalent day loss of a very serious injury may be higher than that of a fatal accident. To calculate the accident occurrence index, the total equivalent day loss should be divided by the total man-days required of the project. For example, a contractor recorded that there were 12 accidents when a building project was completed. There were a total of 100 days loss for these 12 accidents and a total of 10% disability of the injured workers. There were 10,000 man-days of labor force recorded for completing the project. Then the accident occurrence index would be ( ) / 10,000 = Figure 6 shows the questionnaire used to acquire information about AOI. Contractor name : Contract title : Contract sum : HK$ Contract period : to Number of working days : days Total man-days employed : (include subcontractors) Number of accidents : Result of injury: Result of death: Figure 6 Data for calculating Accident Occurrence Index of Each Site/Project 219

8 Result of research and optimal safety investment Altogether 576 accidents from 18 building projects were investigated (Tang et al, 1997). Therefore, 576 forms (Figure 1) were filled. 18 forms (Figure 3) and 18 forms (Figure 6) were also filled. The data obtained were used to plot a curve as shown in Figure 5. A minimum point can be obtained from the curve. It was found that in Hong Kong, the optimal safety investment on a building project was about 0.8% of the contract sum. The total cost to the contractors (accident loss + safety investment) was found to be 1.2% of the contract sum. In fact, the 0.8% should be regarded as a minimum amount of safety investment. An investment greater than 0.8% will result in intangible benefits, such as greater peace of mind of workers, better reputation of the company, greater job satisfaction and so on, which, although not considered in this mathematical model, will definitely be valuable assets to the contractor. Social Costs of Construction Accidents What Are Social Costs? Social costs represent losses incurred by society due to occurrence of construction site accidents. Social costs are defined as any items that will result in the utilization of national resources. Social costs are not based on the contractor s point of view like what were discussed in the previous sections, but are based on the society s point of view. However, most of the financial costs (but not all) are also social costs, and costs incurred by society are of a wider perspective than those incurred by private investors (contractors) and for some individual items costs incurred by society are higher than costs incurred by contractors. For example, hospital fees paid by a contractor (financial loss) to the injured worker is HK$68 per day, but the actual cost incurred (social loss) is about HK$1,800 per day in That is to say, the society (the Hong Kong Government) subsidizes the injured worker HK$1,732 per day for his stay in a hospital. This point will be further discussed below. The following are examples of social costs (Ngai and Tang, 1999): (a) The productive years of the injured worker. To evaluate the loss of the productive years of a worker, the method stated in the Employees Compensation Ordinance published by the Hong Kong Government should be adopted. The ordinance establishes the compensation of an injured worker for the case of permanent total incapacity and the case of permanent partial incapacity, with reference to earnings, age and the extent of loss of earning capacity of the injured worker. (b) Families and relative losses. This refers to the opportunity costs of housewives work and relatives work to take care of the injured workers. (c) Fire Department and rescuer services. Costs are incurred by society to provide rescue services such as the ambulance transportation and first-aid services. Besides, fire-engines services and the wages of the related staff are also social costs. It is found that the average costs per accident, including the human resources and the operation costs of equipment of the Fire Department in 1996 and 1997 were HK$9, and HK$9, respectively. (d) Losses due to the medical expenses and hospitalization. In Hong Kong, the hospitalization fees of local residents in public hospitals were HK$60.00 and HK$68.00 per day per person in 1996 and 1997 respectively. However, the actual expenses that the hospitals incurred were HK$1, and HK$1, per day per person in 1996 and 1997 respectively. The losses incurred by the society are the actual expenses. (e) The Hong Kong Police Force. When a construction site accident is reported to the police, the latter will tackle the case and carry out immediate actions. The police also maintains discipline on site and assists factory inspectors from the Labour Department in investigating the accident. This is also a cost to the society. (f) The Social Welfare Department. This includes the administration/personnel costs of the Social Welfare Department to provide assistance to the injured worker. (g) The Labour Department. This includes the costs for regular site inspection for prevention of accidents and the costs for investigation and reporting if accidents occur. (h) The Court. When a serious or a fatal accident happens, the Court will carryout an investigation to find out the reasons for the injury or the death of the worker, especially when there is any argument between the employer and the family of the employee. This is another cost to society. The items (a) through (h) described above, when added to the financial costs described in section 2.1, represent total social costs of construction accidents. Note that financial losses such as fines and insurance premium should be excluded from the social costs consideration because they represent internal 220

9 transfers (Tang, 1996) rather than the costs of the society. Safety investment by society Under the social costs of construction accidents, safety investment consists of resources invested both by the contractors and the government. Safety investments by contractors have been discussed in Section 2.3. Safety investments made by the Hong Kong Government include: (a) Safety administration personnel from government departments - Safety inspectors, safety advisors, senior safety advisors of the Labour Department - Other supporting staff in the Labour Department and the Occupational Safety and Health Council (OSHC) who are responsible for safety in the construction industry (b) Safety training and promotion organized by government departments - Printing of pamphlets and posters, the making of safety advertising boards and banners, the organizing of safety campaigns, etc. - The costs of safety training courses offered by government education institutions [e.g. The Hong Kong Polytechnic University (HKPU) and the Construction Industry Training Authority (CITA)] Impact of Safety Investment to Construction Site Safety In view of the present unsatisfactory situation of construction accidents in Hong Kong, it is of no doubt that the government, promoters and contractors should increase their safety investment in construction projects to improve site safety. More measures should be implemented to improve site safety. The increase in safety investment will result in higher social benefits. Social benefits are defined as any items that will result in a saving of national resources. Social benefits refer to the resources saved owing to the reduction in the number of fatal and/or injured workers. For instance, the number of fatal and injury cases per thousand workers in the construction industry in 1995 were 0.96 and respectively and in 1996 were and respectively. Therefore, the social benefits gained by the society are the resources saved owing to the reduction of fatal workers per thousand workers and the injury workers per thousand workers. As the saved resources can be used somewhere else in the society, these can represent benefits to the society. Using the statistical data, the social costs incurred by and the safety resources invested by contractors and the government in 1999 and 2000 can be evaluated. The difference of social costs of 1999 and 2000 represents the social benefits (the social costs in 1999 is expected to be higher than that in 2000 due to a higher safety investment in 2000 than in 1999). As a result, the impact of safety investment on social benefits for construction projects can be established. A large scale survey is being conducted to acquire financial and social costs data of construction accidents in Hong Kong. Data on safety investments made by contractors and public bodies are also being collected. The results are not yet available at the time the author is writing this paper. It is hoped that some results can be released in the conference to be held in April/May of Reference Heinrich, H.W., Peterson, D. and Ross, N. (1980). Industrial Accident Prevention: A Safety Management Approach, 5 th edition. McGraw-Hill, New York. Hong Kong Government (1995). Consultation Paper on the Review of Industrial Safety in Hong Kong. Education and Manpower Branch, Hong Kong Government. Lee, H.K. (1991). Safety Management: Hong Kong Experience. Lorrainelo Concept Design, Hong Kong. Levitt, R.E. and N.M. Samelson (1993). Construction Safety Management, 2 nd edition. John Wiley & Sons, New York. 221

10 Ngai, K.L. and Tang S.L. (1999). Social Costs of Construction Accidents in Hong Kong. Proceedings of the 2 nd International Conference of CIB Working Commission W99 on Implementation of Safety and Health on Const4ruction Sites, Honolulu, Hawaii, USA, March 1999, pp Tang, S.L. (1996). Economic Feasibility of Projects, revised edition. McGraw-Hill. Tang, S.L., H.K. Lee and K. Wong (1997). Safety Cost Optimization of Building Projects in Hong Kong. Construction Management and economics, Vol.15, No.2, pp