The Rising Costs Of Non Compliance – Are You At Risk?
Your business is doing very well.
You are ahead of your competitors.
You have seen your business grow year after year.
Now you face an unexpected bill of 6.5M.
It is now due.
Too far-fetched to be true?
This is exactly what happened to a Scottish company recently;
Freight operator WH Malcom, were fined £6.5 million after being found guilty of negligence over the death of an 11-year-old boy in 2017.
The court found the company breached both the Health & Safety at Work Act 1974, and the Management of Health and Safety at Work Regulations 1999. This occurred whilst the company was the operator for the Daventry International Rail Freight Terminal near Rugby.
The point is, the cost of preventing these breaches was minimal. A minute fraction of the fine.
We often see compliance as an unwanted cost.
Instead, we should see compliance as an investment in our people,our business and our future.
Then we should consider the horrendous cost of non – compliance.
This is basic risk mitigation.
How Non Compliance costs Are Increasing.
The penalties and fines for compliance breaches in the construction industry are rocketing.
New sentencing guidelines for H&S offences came into play in 2016
The following makes for sober reading;
‘The average fine per conviction pre-guidelines in 2015/16 was £57,735, while the average fine per conviction in 2018/19 soared to £107,000.
In the construction industry in 2018/19, there were 158 prosecution cases, with 146 (92%) resulting in a conviction for at least one offence and £15.7million in fines. Million-pound fines are now commonplace and, notably, since introducing the guidelines, a death no longer needs to occur for large fines of over £1m to apply. Also, it is now the risk of harm that is recognised as the offence, so increasingly large fines are being handed down without any actual harm taking place.’
So the costs of non – compliance are rising sharply. Fines are being levied in proportion to a company’s business turnover and this trend looks set to continue.
Compliance is also becoming more complex and more pervasive in our businesses.
The Complexity Of Compliance
Compliance is also becoming far more complex with increased demand for specialist knowledge.
A good example of this is in Fire Risk strategy and regulations for both new and existing buildings.
Since Grenfell and the Hackitt Review, a culture of fear is beginning to emerge with people reluctant to commit to and interpret legislation. The legislation appears to be fragmented.
Even for ‘experts’ it is becoming increasingly difficult to interpret and apply to a particular project. There is a pervasive fear of ‘getting it wrong’ and dealing with the consequences.
The construction and building industry has traditionally viewed compliance through the lens of Health & Safety. Now compliance is becoming important in other areas. This has a direct and indirect impact on costs.
For example, compliance now has direct effects on the following;
- Bids for Tenders & Framework Agreements
- Sustainable Development – Transparent audit trails and proof of origin of source materials
- Financial Compliance
- Fire Risks In Building Development
- Supply Chain Management- supply of goods services & equipment and products
- Corporate Social Responsibility
- Energy Efficiency & Climate Change Targets & Use of sustainable materials. (timber)
What About The Indirect Costs Of Non-Compliance?
We rarely take indirect costs into consideration in gathering data and statistics.
Examples of indirect non-compliance costs are;
- Work stops on-site – e.g. Incorrect documents – do we ever question how much this costs?
- Lack of proper planning and collaboration at outset means the site and work carried out is chaotic and inefficient.
- Changes in specification to a project – this moves the goalposts for compliance – costs?
- Labour shortages – new recruits need to be trained and schooled in H&S.
- Site investigations – accidents or incidents- interruptions and cost.
But let’s be clear on one point.
Businesses have to make a profit or at the very least break even. Construction companies build things. That is ultimately what we judge them on.
Running a profitable and compliant business is not mutually exclusive. They depend on one another. This does not mean running profitable and compliant businesses is easy.
Compliance is a challenge no matter what size your company is.
It is particularly challenging for mid-size companies. They might not have the budgets to employ a full time Health And Safety manager.A quick scan of UK salaries for such a person ranged from an average of 35k to 55k plus.
In smaller businesses, it’s difficult to take time out to take stock of your compliance systems and procedures.Many business owners spend their working weeks and months working IN the business with no time to work ON the business. This can cause the following;
- Complacency – ‘It won’t happen to me’ ‘ we do not need it for this- project-task-action’.
- Lack of planning & time constraints – up-and-coming projects – tenders.
- Poor risk management & planning.
- Lack of training & awareness – ‘hired hands on site – here today gone tomorrow’.
- SME affordability? H&S employee costs?
- Crisis by the hour – the phone won’t stop ringing – I’m drowning in emails – I have no TIME.
- Poor management process & record keeping – everything is paper based – no digital system for document location and retrieval.
- Lack of engagement with experts if needed – they engage too late – ‘ I started a fire now you put it out’.
- Last minute.com- ‘Can you do… X… by tomorrow as we are on site?’
- Head down in the muck and bullets – fire fighting – overwhelm.
This can cause being penny-wise pound foolish and increase the risk of non-compliance.
One way of dealing with this is to seek outside help from trusted experts.
They will endeavour to understand your business, how it operates, the work you undertake, the clients you work with currently.
They will identify where you have compliance weaknesses or gaps. They will TELL you if you are non-compliant.
They are duty bound to tell you the truth.
By the same token, they will advise you, tell you what you need right now to operate successfully.
They should understand where your business is right now and perhaps where you want it to be in the future.
They can afford the time to take a helicopter view of where you are and give a third party view.
6.5 million is a heavy cost for non-compliance.
Complying with regulations and being able to evidence it is crucial to a successful and profitable business with a sustainable future.
Staying in the game is the goal, not winning it. Non-compliance puts you out of it.
If you have any compliance queries or just want to ask a question – please contact us