IntroductionEnvironmental due diligence has become associated with commercial real estate transactions and encompasses the overall effort to assess potential environmental liabilities attached to a piece of land. However, the concept of environmental due diligence efforts can and should be equally applied to "in-plant" or workplace environmental conditions attendant to a corporate entity. Such an assessment can reduce certain risks when buying a business, hiring an outside contractor or awarding public contracts.
Business Acquisitions
When commercial real estate transactions include the purchase of a business entity, brokers, lenders, attorneys, accountants and others who perform or review business appraisals may fail to examine the impact of workplace health and safety obligations imposed by the Occupational Safety and Health Administration (OSHA) upon business operations.
OSHA penalties today can often reach six figure amounts. Also, government mandated implementation of costly hazard abatement measures may alter the viability of a business purchase. These circumstances are not restricted to traditional heavy industry or light manufacturing worksites. Several existing or emerging OSHA standards such as ergonomics, indoor air quality and hazard communication are being applied to a wide variety of workplaces that many falsely assume do not have significant potential for OSHA violations. These include but are not limited to medical facilities, nursing homes, veterinary offices, hotels, warehouses, airline ticketing offices, non-manufacturing offices, retail establishments and real estate management firms. Knowledgeable interpretation of prior violative conditions may uncover significant additional capital requirements or hidden liabilities. OSHA compliance screening should be viewed with importance equal to examination of business credit history, financial statements and corporate officer personal background checks.
Contractor Screening - Private Sector
OSHA’s Process Safety Management of Highly Hazardous Chemicals Standard 29 CFR 1910.119, sometimes referred to as the "no Bhopal law", was enacted in response to a number of explosions within the petrochemical industry during the late 1980’s. Investigations into the cause of these incidents revealed a growing cost cutting trend by industry to employ outside contractors to perform routine maintenance and repair activities in their refineries. It was found that these lower cost workers who were unfamiliar with the complexities of their workplace, untrained in proper safety procedures and often circumvented established safeguards, had contributed to or were directly responsible for these tragedies. The OSHA Process Safety Standard attempts to prevent future occurrences of this nature by requiring employers to establish a screening process and to evaluate information regarding a contract employer’s safety performance and programs. Examination and knowledgeable interpretation of outside contractor prior OSHA violation history can be one important ingredient for compliance with the process safety standard and risk reduction.
Contractor Screening - Public Sector
Public sector contracting officials are often frustrated by constraints imposed under federal or state acquisition regulations to accept so-called "lowest responsible bidders" on construction projects. These rules can oblige public agencies to award contracts to companies with a history of poor contract performance.
Unfortunately, some bidders may take an approach of under-bidding a project to secure contract award with the intention of realizing profits through a combination of inflated costs for change orders and cutting costs of construction. One of the first targets for cost cutting is often compliance with safety or health rules. Unless the contract scope of work establishes the contractors specific safety obligations rather than simply stating a broad, ambiguous and difficult to enforce requirement to "comply with all applicable safety regulations," or the definition of "responsible" does not include an acceptable safety record, the public agency may be hamstrung by their own legislative language.
Unsafe contractors by virtue of their disregard for safety are more likely to have jobsite accidents or fatalities and cause costly project delays. There has been one report of a bond-funded $51 million California municipal construction project that was delayed for nearly 12 months due to contractor safety related problems. Also, the hiring of contractors that cause personal or property damage may form the basis for a cause of action if the public entity failed to exercise due diligence in performing contractor background investigations.
One approach to evaluating contractors than may withstand inherent weaknesses of existing procurement rules is to ask for disclosure of OSHA violation history during a three or five year prior period prior to anticipated contract award. Independent verification of contractor supplied data may reveal material misrepresentation that can in turn be used to justify debarment.
A second approach is to amend existing or adopt new procurement rules that establish minimally acceptable contractor safety performance histories. Currently, Connecticut and Maine are the only two states that have laws specifically addressing this area. New Jersey has similar rules under consideration in both the Assembly and Senate.
Title 31 Chapter 557 Part III of Connecticut General Statutes Annotated prohibits the award of any state contract for three years to companies that have been cited by OSHA for three or more uncorrected willful or serious violations or any criminal convictions related to an employee injury or death. It also prescribes remedies for submitting false information including penalties up to five thousand dollars and debarment for five years. Title 26 Chapter 19 of Maine Revised Statutes Annotated debars contractors for two years if they have been cited for any serious, repeat or willful violation that has become a final order.
The proposed New Jersey legislation applies only to state construction contracts and debars for five years any company with willful or repeat violations or who has been assessed with any failure-to-abate penalties. A novel approach by the proposed New Jersey law is its prescribed incentive allowance of 10 percent above the low bid given to any bidder that has an exemplary safety program defined as approval by OSHA under their Voluntary Protection Program.
Copyright 1997 OSHA DATA (tm), Maplewood, NJ.
# # # Back to OSHA DATA Home Page