Wednesday, March 18, 2015 Houston, TX. 11:00 a.m. 12:15 p.m. CONTRACTOR MANAGEMENT USING SAFETY ANALYTICS AND INSURANCE BENCHMARKING

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1 Wednesday, March 18, 2015 Houston, TX 11:00 a.m. 12:15 p.m. CONTRACTOR MANAGEMENT USING SAFETY ANALYTICS AND INSURANCE BENCHMARKING Presented by Brett M Parker Senior Project Lead ISN Software Corporation Dag Yemenu Vice President ISN Software Corporation, Technical Services Outsourcing tasks to contractors is a cost-effective strategy within the energy industry for both routine and emergency services. The operator is able to utilize the contractor s unique skill set on an as-needed basis, versus having to recruit and retain personnel on a permanent level. However, the lack of control over training and management can create unexpected risks for the operator. This workshop will address how to effectively use safety data to identify the potential risk a contractor brings to an operator and then establish insurance requirements that are reflective of the contractor s level of risk by utilizing data from over 50,000 contractors and 350 operators. Copyright 2015 International Risk Management Institute, Inc. 1

2 Notes This file is set up for duplexed printing. Therefore, there are pages that are intentionally left blank. If you print this file, we suggest that you set your printer to duplex. 2

3 Brett Parker, CPCU, CIC, CRIS, ARe Senior Project Lead ISN Software Corporation Brett Parker is a senior project lead at ISN Software Corporation. He has nearly 15 years of insurance industry experience in the carrier, brokerage, and alternative risk fields. Mr. Parker holds the CPCU, CIC, CRIS, and ARe insurance designations and is a member of the Risk and Insurance Management Society. He holds a degree in military science from studies at the University of Southern California, Oxford University, and Southern Methodist University. Dag Yemenu Vice President ISN Software Corporation, Technical Services Dag Yemenu currently serves as the vice president of technical services at ISN. Prior to his current role, Mr. Yemenu held positions in the company s various operational groups in the United States and abroad. Before joining ISN, he had engineering careers in the power generation and aviation industries. Mr. Yemenu is a frequent speaker on the topic of contractor management and has presented on this topic at various industry conferences. He holds degrees in mechanical engineering and industrial engineering and an M.B.A. 3

4 Notes This file is set up for duplexed printing. Therefore, there are pages that are intentionally left blank. If you print this file, we suggest that you set your printer to duplex. 4

5 Contractor Management Using Safety Analytics and Insurance Benchmarking Presented by Dag Yemenu and Brett Parker Agenda I. Importance of Contractor Management II. Industry Best Practices III. Collection of Safety Data IV. Statistical Risk Indicators V. Industry Statistics VI. Benchmarking Insurance Requirements 2 5

6 Importance of Contractor Management 3 Increasing Contractor Hours, Higher Incidents Source: International Association of Oil and Gas Producers. "Safety Performance Indicators 2012 Data." Report No. 2012s, June

7 Contractorization: Opportunity and Challenge Increasing contractorization not necessarily a negative trend for safety Better specialization, skill, and equipment Enables safe and sustainable operations Prime duty for safe operations and environmental stewardship lies with the owner organization Robust strategy needed Better risk mitigation 5 Industry Best Practices 6 7

8 10 Strategic Elements 1. Establish a clear communication strategy 2. Are designed to measure performance 3. Incorporate a risk-ranking process 4. Follow a three-step duediligence process 5. Maintain a qualified contractor list 6. Establish consequences 7. Address subcontractor management 8. Follow standardized and transparent guidelines 9. Integrate with internal business processes 10. Leverage technology 7 1. Establish a Clear Communication Strategy A well thought-out plan for both internal and external communication 99%: US enterprises in the construction industry with fewer than 100 employees. US Census What Zero incidents goals Golden rules Score card status Performance and audit gaps How Timely and consistent Traceable and auditable Mailings/ s Contractor handbooks Electronic platforms Engagement One-on-one meetings Workshops Community meetings 8 8

9 2. Designed To Measure Performance If it matters, measure it Use both leading and lagging metrics Leading Employee turnover rate Third-party certifications achieved Completed vs. expected trainings Completed vs. scheduled inspections New/enhanced safety controls implemented Observations/investigation results Risk assessments and job hazard analyses Employee perception surveys Lagging Injury frequency and severity Near misses (frequency, trend) Fatality or other accidents Lost workday rate Chemical releases OSHA citations (number and type) Workers comp claims and trends Experience mod rate (and changes) 9 3. Incorporate a Risk-Ranking Process Contractors come in various sizes, capabilities, risk profiles Classify risks according to preset criteria and matrix Potential adverse consequences Frequency, duration, and/or scope of work High, medium, low Reevaluate/adjust contractor risk periodically 10 9

10 3. Contractor Risk Matrix: Example Utilize a Three-Step Due-Diligence Process 12 10

11 5. Maintain a Qualified Contractor List Quick, we need them now! Proactive, structured process for finding, qualifying, onboarding, and monitoring contractors Builds stronger and lasting partnerships with contractors Enhances procurement integrity Establish Consequences Establish, communicate, and enforce consequences for noncompliance Develop contracts and agreements carefully Eliminate time/effort required to manage challenging performers Provides a base of fewer, safer service providers 14 11

12 7. Address Subcontractor Management Have you ever seen service providers with logos you don t recognize on your job site? Subcontractors typically have a higher likelihood of incidents Best practice subcontractor approaches: 1. Ensure they are qualified/monitored to same level of standards as general contractor or 2. General contractor required to demonstrate the same level of rigor for qualifying subs Follow Standardized and Transparent Guidelines Consistency and transparency is a common challenge Utilize a single, well organized database Improves procurement transparency Minimize duplication and inefficiencies 16 12

13 9. Integrated with Internal Business Processes Contractor management as an integral part of the complete business processes Goal: to drive end-to-end risk management Examples of contractor key performance indicator integration: Purchase orders issued only to qualified contractors Site entry ID badges tied to contractor approval status Leverage Technology Without technology/automation, contractor management can become laborious, inefficient, and disorganized Use of Internet and specialized management tools Collect and share information in a secure and efficient environment Reduce duplication and administrative cost Fifty-nine percent of best-in-class organizations use technology to enhance HSE performance (2) (2)

14 Collection of Safety Data 19 Forms OSHA 300 and 300A Certificate of incorporation Federal tax ID number Experience modifier work sheet Contract and acknowledgement forms Certificate of insurance Contractor trade license Supplier diversity certificate 20 14

15 Management Questionnaire A standardized questionnaire completed by all contractors and suppliers to capture self-reported health, safety, procurement, and other company-level information Configure questions that are applicable to region and project if applicable Address questions regarding management processes and procedures Review and share with industry peers Determine consistent grading system for responses Update annually 21 Safety Programs Desktop HSE program review Compare against regulatory requirements (OSHA/MSHA) Work-type safety matrix Company specific versus store-bought Current version Company culture and safety expectations 22 15

16 Field Audits Observe safety practices in the field Test employees knowledge on safety programs Determine if safety protocols are followed Unannounced audit versus scheduled Standardized score card Share results with contractor 23 Post Job Evaluations Evaluate the contractor s performance Performed by the operator Evaluate safety and non-safety-related criteria Determine if certain teams/locations perform better than others Ensure key items are consistently evaluated 24 16

17 Third-Party Data Training logs Drug and alcohol testing Background checks Company registration information Citations Search public databases for regulatory citations OSHA, MSHA, EPA Biannual basis

18 Statistical Risk Indicators 26 Indicators That Reduce Risk 2 documented employee observations per month Safety programs audited against OSHA standards Company utilizes a permit to work system Company has a full time HSE Director Subcontractors are included in hazard assessments Perform pipeline covered tasks defined by the DOT Company has a Stop Work policy in place Employees work in a PSM facility Decreases Risk to Operator 27 18

19 Indicators That Increase Risk Company operates as a Commercial Motor Carrier Prior year's DART ratio was greater than 1 Employees work at heights greater than 6 feet Prior year's DART ratio was over 0 and less than 9 Company brings chemicals onto an operator's site Any regulatory inspections in the past 3 years Increases Risk to Operator DART=days away/restricted or job transfer rate: # of recordable incidents per 100 employees that resulted in lost or restricted days or job transfer due to a work-related injury or illness. 28 Impact Total Recordable Incident Rate (TRIR) Prior year TRIR is greater than 1.5 Prior two year TRIR greater than 1.5 Prior year TRIR between Prior two year TRIR between 1.0 and 1.5 Prior year TRIR between.25 and 1.0 Prior two year TRIR between.25 and Increases Risk to Operator TRIR formula: (total number of recordable cases x 200,000) / total hours worked by all employees for the given year

20 Industry Statistics 30 TRIR by Industry Segment 31 20

21 DART by Industry Segment 32 21

22 Lost Time Case Rate by Industry Segment 33 22

23 Fatality Rate by Industry Segment 34 23

24 Severity in Days by Industry Segment 35 24

25 Experience Modifier by Industry Segment 36 25

26 Benchmarking Insurance Requirements 37 General Liability: Per Occurrence $9,000,000 Weighted Industry Average Requirement = $5,543,990 $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- Upstream Onshore Upstream Offshore Midstream Downstream 38 26

27 Auto Liability: Combined Single Limit $9,000,000 Weighted Industry Average Requirement = $5,311,733 $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- Upstream Onshore Upstream Offshore Midstream Downstream 39 27

28 Employer s Liability: Each Accident $8,000,000 Weighted Industry Average Requirement = $4,712,991 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- Upstream Onshore Upstream Offshore Midstream Downstream 40 28

29 Professional Liability: Per Claim $3,500,000 Weighted Industry Average Requirement = $2,400,018 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $- Upstream Onshore Midstream Downstream Upstream Offshore 41 29

30 Pollution Liability: Per Occurrence $7,000,000 Weighted Industry Average Requirement = $3,664,435 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- Upstream Onshore Midstream Downstream Upstream Offshore 42 30

31 Policy Provisions Requirement Upstream Onshore Upstream Offshore Midstream Downstream % Requiring % Requiring % Requiring % Requiring Additional Insured 100% 100% 100% 100% Additional Insured: Endorsement Required 11% 14% 12% 6% Auto Liability: MCS-90 Endorsement 19% 14% 37% 31% Certificate Holder 100% 100% 100% 100% Excess/Umbrella: Follow Form 4% 9% 7% 13% Financial Strength 43% 45% 49% 50% Primary/Noncontributory Clause 66% 68% 71% 63% Waiver of Subrogation 100% 100% 100% 94% 43 31

32 In Summary What gets measured get done Occupational safety and health is first of all a matter of human right and respect for human dignity. Juan Somavia (3) (3) 44 Resource: White Paper on Best-in-Class Contractor Management Request white paper at:

33 Origination of Data: ISNetworld Web-based contractor/supplier information management Collect and review HSE, quality, insurance, procurement, compliance, and other data Industries served: Oil and gas Chemical Mining Manufacturing Utilities/power generation Health care and pharma For a complete copy of the ISN white paper What is Best-in-Class Contractor Management, please visit 46 Contact Information Dag Yemenu: Vice President Technical Services dyemenu@isn.com Brett Parker, CPCU, CIC, CRIS, ARe: RAVS Technical Lead bparker@isn.com ISNetworld 47 33

34 ISNetworld Insurance Review and Verification Services IRMI Energy Risk and Insurance Conference March 18, Dallas Calgary Sydney London Los Angeles New York