Safe at all Costs

Property restoration projects can be far more complex – and hazardous – than many might think. Recent weather-related catastrophes serve as a reminder that property restoration projects pose numerous health and safety threats to both restoration workers and building occupants.

Contractors undertaking restoration work on behalf of property insurance clients have little input into determining their own prices and overhead allowances. However, the cost of ensuring the safety of this work is significant, especially when one accounts for the cost of personal protective equipment, employee training, compliance with industry best practices, provincial workers’ compensation premiums and incident investigation.

The ever-growing list of safety requirements adds cost and complexity to even the simplest of restoration projects.

Take a basic water loss, for example. Obvious hazards include exposure to bacteria from sewage and the risk of slipping or falling on wet surfaces. However, look more closely and there are a number of additional hazards that could be present. Examples include electrical hazards, the potential for blowback from compromised furnaces, heat stroke when such work occurs during periods of high temperatures and hazards relating to the use of chemicals. These are issues that restoration contractors face every day.

During catastrophic events, restoration contractors employ large numbers of temporary workers. More recently, we have seen large, independent groups of volunteers tearing out water-damaged building materials. Regardless of who does the work, workers must be aware that older building materials may contain asbestos in varying degrees, and both regular and temporary workers must be trained to identify potential exposures, and to take appropriate measures to deal with them.

This is true of all regulations affecting the industry, be it the identification of designated substances, complying with accessibility laws, workplace harassment regulations, and the Ontario Ministry of Labour’s proposal to mandate training for occupational health and safety (OH&S) awareness. The restoration industry is highly regulated and compliance comes at a cost.

In order to ensure compliance, restoration contractors invest heavily in the development of (OH&S) programs for their businesses. There is no “one-size-fits-all” solution. Many restoration companies have expanded beyond traditional fire/flood/wind remediation and offer specialized cleaning services such as trauma scene restoration. Others offer hydrocarbon remediation. With each new area of expertise comes additional complexity and additional OH&S costs.

OH&S program costs that can be incurred

Development of OH&S programs — The cost to develop these programs is significant and in many cases, involves the expertise of outside resources to ensure maximum effectiveness. Best practices, American National Standards Institute (ANSI) standards and the cost of complying with federal/provincial/municipal regulations are all part of the equation.

Training — Once OH&S programs are developed, the appropriate personnel must be trained and ongoing training programs must be developed. Training in the restoration industry is continuous, not just for new employees, but for everyone in the organization.

OH&S Audits — There are typically three types of audits to ensure that OH&S programs are as effective as they can be. External audits are usually conducted by third-party experts, outlining areas of strength and areas where improvements can be made. Maintenance audits are typically conducted by in-house staff charged with maintaining OH&S programs. These audits focus on compliance and training, again to ensure that programs do not become out of date and remain effective. Finally, peer audits can be conducted by other restoration firms, or by other restoration locations from within a national network.

Workers’ compensation benefits — The benefit of workers’ compensation regimes is that they provide on-going monitoring and a host of resources aimed at reducing workplace hazards and workplace injuries. However, these programs are complex and bureaucratic, and require the expertise of outside consultants to navigate the myriad rules that exist. The bureaucracy in some regimes has led to confusion over benefits and premiums. In the case of Ontario, the Workplace Safety and Insurance Board, as of March 31, had an unfunded liability of more than $13.3 billion. This is money that WSIB forecasts is required to meet future obligations, but which WSIB currently does not have.

The provincial government has no appetite to use taxpayer money to fill the gap, so the Ontario workers’ compensation regime is looking to new avenues to increase revenue. Options include across-the-board rate increases, reduction of benefits and finding new participants to include in the program.

Accident investigation and documentation — No industry has a perfect safety record. When incidents do occur, there is a significant cost to investigating and documenting the details. In part, this is required to ensure compliance with regulations, but good health and safety programs include an intelligence component, where incidents are analyzed and operations are adjusted to mitigate future exposure to similar events.

Personal protective equipment (PPE) — PPE is required for working either with certain substances, or in confined spaces, or both. In the past, the need for PPE has sometimes been questioned by industry stakeholders. However, the use of PPE is well-documented in the many standards employed by the restoration industry. Stakeholders have access to these standards, and are in a position to plan for the use of PPE when certain types of losses occur. PPE is an absolute must for restoration workers, and the cost of PPE is always justified.

While not an exhaustive list, each of the above costs are unavoidable and must be absorbed into the operating overhead of all restoration firms. The challenge for the restoration industry is that it traditionally has had little input into determining market prices and overhead allowances. Third-party (non-restoration) companies act as pricing aggregators, and the mechanism to convey overhead cost increases to these companies has historically been a challenge. As a result, cost increases do not always correlate to increased line item prices, and restoration contractors see margins continue to dwindle.

In some instances, new requirements or regulations are implemented without seeking input from restoration firms, giving them little or no time to plan for the changes. The Henry B. Tippie School of Management at the University of Iowa notes that the average Canadian property and casualty insurance industry profit margin is 9.7%. Were this true of the restoration industry, any new regulation that resulted in a restoration company paying, for example, an additional $2,000 per annum would have to be paid for from the proceeds of $20,650 in additional revenue. Without the opportunity to plan and seek new sources of revenue, the only steps that could be taken would focus on cost-cutting, with human resources costs potentially being a prime target. Such steps would place additional pressure on maintaining existing service levels.

Even more challenging than unplanned regulation is the issue of everyday costs versus revenue. An internal study conducted by RCOC documented the trajectory of both costs and revenues over the last three years. It found that the rise in costs has outpaced the rise in line item pricing. Adjusted for inflation, the restoration industry has actually seen a decrease in revenue, all things being equal.

As a result, RCOC has hired an outside consultant to conduct a more thorough review of these issues and to make recommendations to all industry stakeholders, including restor ation companies themselves. This will assist the restoration industry in positioning itself for future changes and the probability of additional regulatory costs.

It is difficult to find any industry that does not operate under the shadow of increasing costs. Inflation is something that all businesses have to deal with. Occupational health and safety costs are significant in the restoration industry. With more regulations on the horizon, Canada’s full-service restoration industry has launched a bold initiative to understand how health and safety costs, among its many costs, will affect the long-term sustainability of the industry. In the meantime, stakeholders need to be aware of the challenges that the restoration industry faces, and are encouraged to participate in a joint effort that will ensure long-term sustainability, and continuing levels of service excellence.