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Controlling Workers' Compensation Costs in Construction

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2014 ASEE Annual Conference & Exposition


Indianapolis, Indiana

Publication Date

June 15, 2014

Start Date

June 15, 2014

End Date

June 18, 2014



Conference Session

Construction Safety and Risk Management

Tagged Division


Page Count


Page Numbers

24.320.1 - 24.320.13



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Paper Authors


Neil Opfer University of Nevada, Las Vegas

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UNLV Associate Professor
Department of Civil & Environmental Engineering & Construction

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David R. Shields P.E. University of Nevada, Las Vegas

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David R. Shields, Ph.D., P.E. Dr. Shields is an Associate Professor in Department of Civil and Environmental Engineering and Construction in the Howard R. Hughes College of Engineering at the University of Nevada, Las Vegas. He has received two outstanding faculty awards and two service awards at UNLV. He has over 25 years of industry and government experience in construction, engineering, and research and eight years of academic experience. He was Co-Chair of the ASCE Civil Engineering in the Oceans V conference. He was the only manager in the 55-year history of the Naval Civil Engineering Laboratory ever to win the Employee-of-the-Year Award. He has won numerous awards for project management. He has conducted research for the Construction Industry Institute, Center for Construction Industry Studies, U.S. Navy, U.S. Army, OSHA and other organizations. He has published 45 journal and conference papers. He holds a Ph.D. in Civil Engineering from the University of Texas at Austin and the M.S. and B.S. in Ocean Engineering from Texas A&M University.

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ASEE Controlling Workers Compensation Costs Abstract 10-2013Worker's compensation costs in U.S. construction are a significant cost element. Thesecosts for certain crafts in certain states can exceed $50 for every $100 of base labor costs.Worker's compensation costs have a strong tie to medical costs which have outpacedgeneral inflation levels in the U.S. economy recently. This, in turn, has obviously led toincreased costs for contractors. However, in a survey of the construction industry by theauthors, a number of proven strategies were found which can significantly lower thesecompensation costs. Some contractors have just taken compensation costs as a given costfactor. Proactive contractors instead have taken a multi-faceted cost-reduction approach.Effective safety and safety training programs obviously reduce exposures in the firstinstance. Screening of prospective employees through substance-abuse testing has beenseen to yield substantial benefits. These proactive contractors take this further byscreening their prospective subcontractors and third-tier subcontractors for lowerexperience modification ratings (EMR). Moreover, they encourage project owners to setEMR targets at better-than industry-average numbers to screen out unsafe contractors inthe bidding competition for projects. These steps reduce multiemployer work-site issues.Knowledgeable owners were found to accept EMR specification requirements in order toreduce chances for third-party lawsuits and associated issues. Owners such as state DOTunits have encouraged additional safety procedures in work zone safety by paying forsuch items as safety signs and barricades on a unit-price basis thereby discouragingcontractors from cutting corners in these areas. Other owners have provided directcompensation for job-specific safety training. Constructability analysis to reduce safetyexposure through increased pre-fab work and pre-assembly at ground level were sometechniques found to provide a safer work environment. This ground-level work meansfewer hours for personnel at height where fall risks are present. Proactive contractorswere also found to have incorporated safety performance along with productivity, cost,and quality targets in their evaluation and promotion criteria. First-line and second-linesupervision is trained to understand both the direct and indirect costs of accidents alongwith the impact of supervision on EMR numbers.State laws in option states allow contractors increased flexibility to seek premiumreductions including risk pooling and self-insurance choices. In addition, contractors canimplement techniques including audit procedures, fraud investigation, and effectiveclassification analysis to reduce costs. Contractors operating under consolidatedinsurance programs on projects such as entity-controlled insurance programs (ECIP) cansee substantial reductions when including worker's compensation insurance. Theintroduction of ECIPs means a unified safety program. Part of this can include mandatedsafety training with upfront costs paid for by overall insurance program savings. Keybenefits of the ECIP whether residing with the owner or overall general contractor areeconomies of scale, certainty of coverage, and administrative benefits.Implementing the above items on a systematic basis, contractors in the same businesslines were found to experience premium savings of 30% or more on some projects.

Opfer, N., & Shields, D. R. (2014, June), Controlling Workers' Compensation Costs in Construction Paper presented at 2014 ASEE Annual Conference & Exposition, Indianapolis, Indiana. 10.18260/1-2--20211

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