One topic that has constantly come up over the years is how to treat safety in a Performance Based Contract (PBC).

In a previous article (see Designing Successful Performance Based Contracts) we described a PBC as having two main parts; (1) the need (or requirement) and (2) the consequence. In terms of the need part, it is widely acknowledged that safety is a critical element of our workplaces, regardless of whether part of the buyer organisation, seller organisation or a third party. Indeed many of our countries have specific legislation / laws that reflect this need (e.g. Workplace Health and Safety in Australia, The Health and Safety at Work etc Act 1974 in the United Kingdom, Canada Occupational Health and Safety Regulations (SOR/86-304) in Canada, etc.). Therefore, the need to have safety included in the Performance Management Framework (PMF) is without doubt. However, there is no agreement on either the specific need or consequence.

For example, some contracts have included easily measured lag performance measures such as Lost Time Injury Frequency Rate (LTIFR), which is a measure of the amount of time that seller’s staff are away from work due to a work related injury, as a ratio to the total work time (see the Safe Work Australia entry on LTIFR). Moreover, these contracts may link this measure to payment, either positive or negative, as a form of, consequence. Unfortunately, by linking safety to payment, especially a reduction in payment, drives some unintended consequences in sellers, especially those in financial distress. Specifically, this approach may encourage the misreporting of either injury severity or recovery duration. While this may seem overly pessimistic, especially considering the importance placed on safety, I am aware of a situation where an injured person was placed on training as opposed to convalescent leave. Fortunately, this was a rare example. However, I would argue why we need to create situations that reward misreporting?

Given this, my colleagues and I think that while it is essential that we measure safety, it is better to do it as a non-financial and qualitative performance measure. However, this does not mean there are no consequences for poor safety performance. Indeed, regardless of a signed contract, many countries have very strict obligations on organisations to protect their employees and third parties. Accordingly, we tend to use performance measures that such as Strategic Performance Indicator (SPMs) or a System Health Indicator (SHIs) linked to non-financial rewards and remedies such as additional contract tenure or future work noting this may include LTIFR (When is a KPI not a KPI describes the different tiers of performance measures) .

One such performance measure is the Safety Culture SPM which represents, as either Satisfactory or Unsatisfactory, a measure of the seller’s individual and group values, attitudes, competencies and patterns of behaviour that determines the commitment to, and the style and proficiency of, an organisation’s safety management system. Assessing this SPM is against 5 keys areas; (1) risk management, (2) management of work processes, (3) participation, communication and skills, (4) planning, design and procurement and (5) monitoring and review. In my experience, by using a Safety Culture SPM the performance conversation is now on overall safety performance as opposed to a single, quantitatively measurable sub-element such as LTIFR.

So next time you consider using a payment related safety metric in a PBC, pause and consider the behaviour you trying to drive. Then decide whether this approach is achieving this or whether there are other ways. Since in the end, regardless of whether buyer or seller, we all want the same outcome; a safe workplace.