FINANCIAL AND SOCIAL COSTS OF CONSTRUCTION ACCIDENTS
Tang, S.L.
Civil and Structural Engineering Department, The Hong Kong Polytechnic
University, Hunghom, Kowloon, Hong Kong
Introduction
In Hong Kong, the construction industry, especially for building projects, has a very poor safety record
(Lee, 1991). The number of construction accidents is consistently at a very high level (Hong Kong
Government, 1995). It accounted for more than one third of all industrial accidents and most fatalities in
industrial accidents occurred in the construction industry. There is a general consensus that construction
contractors should increase their safety investment in their construction projects. The higher the safety
investment is, the better the safety performance will be. However, the extent of the investment is always
a major concern. Recent research has revealed that in Hong Kong, most contractors set aside an amount
of less than 0.5%, and some even less than 0.25% of the contract sum for investing in safety for their
contracts (Lai, 1995). But is that enough?
Safety investments cannot be limitless. A methodology has been developed in a study (Tang, Lee and
Wong, 1997) to quantify the minimum amount of safety investment for a building project. In that
research, only financial costs of construction accidents have been considered. The social costs have not
been included. The next section of this paper will discuss only the financial costs and the results of the
said research. After that, a section will follow which describes the social costs of construction accidents.
Financial Costs of Construction Accidents
What Are Financial Costs?
Financial costs of construction accidents represent the losses incurred by the private investors, such as
contractors, due to the occurrence of construction site accidents. In financial analysis, market prices are
always used to represent benefits and costs (Tang, 1996). There are a number of studies concerning
accident costs (e.g. Heinrich et al, 1980; Lee, 1991; Levitt and Samelson, 1993). The following financial
losses were used in the research carried out by Tang, Lee and Wong 1997):
(a) Loss due to the injured person
- The compensation paid to the injured worker by the contractor is 2/3 of the wage of the injured
person for each day of absence from work.
- Disability compensation, which depends on the percentage of disability (determined by a registered
doctor) that the injured worker suffers.
(b) Loss due to the inefficiency of the worker who just recovered from injury upon resuming work
- When the injured worker returns to work, he cannot initially work with 100% efficiency
- A formula to calculate the loss:
Loss = Wage of injured worker × (Day loss × 1/10 + % of disability)
(c) Loss due to medical expenses
- Medical expenses of the injured worker, including the cost of transport to hospital
(d) Loss due to fines and legal expenses
- If the contractor faces prosecution, he may have to pay the solicitor’s fees and fines imposed by the
court.
(e) Loss of productivity of other employees
- The safety officer, site agent, site engineer and the foremen may be involved in assisting the
injured and carry out works relating to the accident such as accident investigation and accident
report writing.
- Other workers may have to stop work immediately after the occurrence of the accident
- Loss assumptions (based on the experience of site safety staff interviewed):
(1) Site agent: 0.05 day
(2) Site engineer: 0.05 day
(3) Foreman: 0.25 day
(4) Other workers: 0.25 day for each worker and on average 4 other workers are involved in each
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accident
(f) Loss due to damaged equipment or plant
(g) Loss due to damaged material or finished work
(h) Loss due to idle machinery or equipment
- After the accident occurred, the workers may stop work temporarily and hence there will be idle
machinery or equipment
- Loss formula is based on the assumption that 20% of the contract sum is attributable to plant and
equipment and that 2% of the plant and equipment will be idle on the day of accident:
Loss =
Contract sum × 20% × 2%
Number of working days of the contract
Figure 1 was the questionnaire the researchers used to acquire the financial costs of accident from
contractors. Readers should note that insurance premium, particularly the additional premium paid to the
insurance company by a contractor when his safety record is poor, represents financial cost. This is,
however, extremely difficult to quantify and therefore is not considered in the research. This is obviously
a drawback. The insurance payment, together with fines imposed by the court, however, are financial
costs only and not social costs. This will be further discussed in section 3.1.
Accident costs and safety performance
The total costs of accidents on a construction site depend greatly on project safety performance. If the
safety performance is good, the accident costs will be low and vice versa. In order to compare site
accident costs of projects of different contract sums and carried out at different time (so that no inflation
adjustment is necessary), the Accident Loss Ratio (ALR), a dimensionless quantity, is defined as follows:
ALR =
TC
× 100%
Contract Sum
where TC is the total costs of site accidents in a project.
The assumed general shape of an ALR versus safety performance curve is shown in Figure 2.
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Cost items arising from each accident
1. Injured person
(Job nature: ____________________________)
-
Day loss
___________ days
-
Amount of compensation
HK$___________
-
% of disability
_____________ %
-
Disability compensation
HK$___________
2. Loss from injured person (after resuming work)
-
Day loss (×1/10 + % of disability × 100)
___________ days
-
Equivalent loss
HK$___________
3. Medical services and expenses
-
Hospitalization / medical expenses
HK$___________
-
Others
HK$___________
4. Fines and legal expenses
-
Fine by court and solicitor fees
HK$___________
-
Others (e.g. transportation costs, etc.)
HK$___________
5. Lost time of other employees
(time taken by other employees in assisting the injured person)
Post
Monthly wages
Time incurred
HK$_________
___________days
HK$___________
- Site Engineer HK$_________
___________days
HK$___________
- Site Foreman HK$_________
___________days
HK$___________
- Site Agent
Amount
* Other Labourers
HK$___________
6. Equipment or plant loss
-
Damaged / replacement cost
HK$___________
-
Repairing cost
HK$___________
-
Others
HK$___________
Fig. 1 Financial Losses of Each Site Accident
7. Damaged material or finished work
-
Cost of damaged material
HK$___________
-
Cost of damaged finished work
Others
HK$___________
HK$___________
8. Idle machinery / Equipment
Figure
1 Financial
Losses
of Each Site Accident
** Idle
machinery
/ equipment
HK$___________
9. Other costs
Items
- _______________________________
HK$___________
Total= HK$
* (4 workers) × (1/4 day) × (Daily wage of injured person)
** (Contract sum × 20%) / (No. of working days) × 2%
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Figure 2 Accident loss ratio (ALR) versus safety performance
Safety investment
Safety investment is aimed at protecting the health and physical integrity of workers and the material
assets of the contractor. Safety investment consists of the following 3 components:
(a) Safety administration personnel
- Site staff and head office staff: according to Hong Kong law, a contractor has to employ safety
officers and safety supervisors on site to monitor safety-related matters
- Some large contractors will also employ safety managers / senior safety officers to direct and
coordinate site safety staff
- The salary of these personnel and their supporting staff (e.g. clerks, typists) are part of the safety
investment
(b) Safety equipment
- Purchasing of safety boots, goggles, helmets, safety fences, first-aid facilities, etc which are related
to the provision of safety on site
(c) Safety training and promotion
- Safety training courses are organized by contractors for their employees
- Safety promotion includes the printing of pamphlets and posters, the production of safety
advertising banners and boards, organization of safety campaign and monetary rewarding of
individual workers who achieve a good safety standard of work, etc.
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Figure 3 was the questionnaire used by the researchers to acquire information on safety investment.
Safety investment on each project
1. Investment on safety administration personnel
1.1 On-site module
Post
Number
- Safety supervisor
(
)
HK$____________
(
)
HK$____________
- Safety officer
Monthly wages
- Secretary/typist/clerk (
)
HK$____________
- Others
)
HK$____________
(
1.2 Head office module
(please fill in monthly wages on pro rata according to no. of projects
supervised in the same period)
Post
Number
Monthly wages
- Safety manager
(
)
HK$____________
- Chief safety officer
(
)
HK$____________
- Senior safety officer
(
)
HK$____________
- Secretary/typist/clerk
(
)
HK$____________
- Others
(
)
HK$____________
2. Safety equipment investment on the project
2.1 Safety equipment investment
HK$____________
3. Safety training cost
3.1 Safety training cost
HK$____________
4. Safety promotion cost
4.1 Safety promotion cost
HK$____________
5. Other costs
Figure
Safety Investment on Each Site/Project
i. 3______________________________
HK$____________
______________________________
Safetyii.investment
and performance
HK$____________
iii. ______________________________
HK$____________
The safety performance of a construction site varies with the amount of safety investment in the project.
The higher the safety investment, the better the safety performance will be, and vice versa. As for ALR,
safety investments on projects of different sizes and of different times can be compared if a dimensionless
Total=HK$ ____________
quantity, the Safety Investment Ratio (SIR) is used. SIR is defined as follows:
SIR =
TSI
× 100%
Contract Sum
where TSI is the total safety investment in a project.
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Figure 4 shows the assumed shape of an SIR versus safety performance curve.
Figure 4
Safety investment ratio (SIR) versus safety performance
ALR and SIR curves combined
If the two curves in Figures 2 and 4 are combined, a third curve of total costs ratio (i.e. ALR + SIR)
versus safety performance can be obtained. This curve will have a minimum point, as shown in Figure 5,
which corresponds to the optimal safety investment of a construction project.
Figure 5 Total costs ratio (ALR + SIR) versus safety performance
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Accident occurrence index
Accident Occurrence Index (AOI) is used to measure safety performance. It is defined as follows:
AOI =
Total equivalent day loss
Total man-days required of the project
n
where Total equivalent day loss = Σ Equivalent day loss of an accident,
i=1
where
n is the total number of accidents in a project, and
Equivalent day loss of an accident = Day loss + (20 × % disability)
For example, if a worker is injured in an accident, has been absent for 30 days, and is certified by a doctor
to be of 2% permanent disability as a result of the accident, then the equivalent day loss will 70 days (30
+ 20 × 2). The maximum percentage of disability is 100. Twenty times 100 is 2,000, and this means that
the equivalent day loss for a case of 100% disability is 2,000 days. A worker in Hong Kong earns an
average of HK$600 a day, and the compensation for a fatality is HK$ 1,200,000. This is consistent with
the current compensation practice if a factor 20 is assumed. The factor 20 will be changed for calculating
equivalent day loss if the compensation policy is changed or if the average daily wage of labourers in
Hong Kong is changed. Note that the equivalent day loss of a very serious injury may be higher than that
of a fatal accident.
To calculate the accident occurrence index, the total equivalent day loss should be divided by the total
man-days required of the project. For example, a contractor recorded that there were 12 accidents when a
building project was completed. There were a total of 100 days loss for these 12 accidents and a total of
10% disability of the injured workers. There were 10,000 man-days of labor force recorded for
completing the project. Then the accident occurrence index would be (100 + 20 × 10) / 10,000 = 0.03.
Figure 6 shows the questionnaire used to acquire information about AOI.
Contractor name
: ____________________________________________
____________________________________________
Contract title
: ____________________________________________
____________________________________________
Contract sum
: HK$________________________________________
Contract period
: ___________________to _______________________
Number of working days
: _______________________________________ days
Total man-days employed
: ____________________________________________
(include subcontractors)
Number of accidents
: ____________________________________________
Result of injury: ___________________
Result of death: ____________________
Figure 6 Data for calculating Accident Occurrence Index of Each Site/Project
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Result of research and optimal safety investment
Altogether 576 accidents from 18 building projects were investigated (Tang et al, 1997). Therefore, 576
forms (Figure 1) were filled. 18 forms (Figure 3) and 18 forms (Figure 6) were also filled. The data
obtained were used to plot a curve as shown in Figure 5. A minimum point can be obtained from the
curve. It was found that in Hong Kong, the optimal safety investment on a building project was about
0.8% of the contract sum. The total cost to the contractors (accident loss + safety investment) was found
to be 1.2% of the contract sum. In fact, the 0.8% should be regarded as a minimum amount of safety
investment. An investment greater than 0.8% will result in intangible benefits, such as greater peace of
mind of workers, better reputation of the company, greater job satisfaction and so on, which, although not
considered in this mathematical model, will definitely be valuable assets to the contractor.
Social Costs of Construction Accidents
What Are Social Costs ?
Social costs represent losses incurred by society due to occurrence of construction site accidents. Social
costs are defined as any items that will result in the utilization of national resources. Social costs are not
based on the contractor’s point of view like what were discussed in the previous sections, but are based on
the society’s point of view. However, most of the financial costs (but not all) are also social costs, and
costs incurred by society are of a wider perspective than those incurred by private investors (contractors)
and for some individual items costs incurred by society are higher than costs incurred by contractors. For
example, hospital fees paid by a contractor (financial loss) to the injured worker is HK$68 per day, but
the actual cost incurred (social loss) is about HK$1,800 per day in 2000. That is to say, the society (the
Hong Kong Government) subsidizes the injured worker HK$1,732 per day for his stay in a hospital. This
point will be further discussed below. The following are examples of social costs (Ngai and Tang, 1999):
(a) The productive years of the injured worker. To evaluate the loss of the productive years of a worker,
the method stated in the “Employees’ Compensation Ordinance” published by the Hong Kong
Government should be adopted. The ordinance establishes the compensation of an injured worker
for the case of permanent total incapacity and the case of permanent partial incapacity, with reference
to earnings, age and the extent of loss of earning capacity of the injured worker.
(b) Families and relative losses. This refers to the opportunity costs of housewives’ work and relatives’
work to take care of the injured workers.
(c) Fire Department and rescuer services. Costs are incurred by society to provide rescue services such
as the ambulance transportation and first-aid services. Besides, fire-engines services and the wages
of the related staff are also social costs. It is found that the average costs per accident, including the
human resources and the operation costs of equipment of the Fire Department in 1996 and 1997 were
HK$9,014.00 and HK$9,885.00 respectively.
(d) Losses due to the medical expenses and hospitalization. In Hong Kong, the hospitalization fees of
local residents in public hospitals were HK$60.00 and HK$68.00 per day per person in 1996 and
1997 respectively. However, the actual expenses that the hospitals incurred were HK$1,570.00 and
HK$1,770.00 per day per person in 1996 and 1997 respectively. The losses incurred by the society
are the actual expenses.
(e) The Hong Kong Police Force. When a construction site accident is reported to the police, the latter
will tackle the case and carry out immediate actions. The police also maintains discipline on site and
assists factory inspectors from the Labour Department in investigating the accident. This is also a
cost to the society.
(f) The Social Welfare Department. This includes the administration/personnel costs of the Social
Welfare Department to provide assistance to the injured worker.
(g) The Labour Department. This includes the costs for regular site inspection for prevention of
accidents and the costs for investigation and reporting if accidents occur.
(h) The Court. When a serious or a fatal accident happens, the Court will carryout an investigation to
find out the reasons for the injury or the death of the worker, especially when there is any argument
between the employer and the family of the employee. This is another cost to society.
The items (a) through (h) described above, when added to the financial costs described in section 2.1,
represent total social costs of construction accidents. Note that financial losses such as fines and
insurance premium should be excluded from the social costs consideration because they represent internal
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transfers (Tang, 1996) rather than the costs of the society.
Safety investment by society
Under the social costs of construction accidents, safety investment consists of resources invested both by
the contractors and the government. Safety investments by contractors have been discussed in Section 2.3.
Safety investments made by the Hong Kong Government include:
(a) Safety administration personnel from government departments
- Safety inspectors, safety advisors, senior safety advisors of the Labour Department
- Other supporting staff in the Labour Department and the Occupational Safety and Health Council
(OSHC) who are responsible for safety in the construction industry
(b) Safety training and promotion organized by government departments
- Printing of pamphlets and posters, the making of safety advertising boards and banners, the
organizing of safety campaigns, etc.
- The costs of safety training courses offered by government education institutions [e.g. The Hong
Kong Polytechnic University (HKPU) and the Construction Industry Training Authority (CITA)]
Impact of Safety Investment to Construction Site Safety
In view of the present unsatisfactory situation of construction accidents in Hong Kong, it is of no doubt
that the government, promoters and contractors should increase their safety investment in construction
projects to improve site safety. More measures should be implemented to improve site safety. The
increase in safety investment will result in higher social benefits.
Social benefits are defined as any items that will result in a saving of national resources. Social benefits
refer to the resources saved owing to the reduction in the number of fatal and/or injured workers. For
instance, the number of fatal and injury cases per thousand workers in the construction industry in 1995
were 0.96 and 232.7 respectively and in 1996 were 0.681 and 219.86 respectively. Therefore, the social
benefits gained by the society are the resources saved owing to the reduction of 0.279 fatal workers per
thousand workers and the 12.84 injury workers per thousand workers. As the saved resources can be used
somewhere else in the society, these can represent benefits to the society.
Using the statistical data, the social costs incurred by and the safety resources invested by contractors and
the government in 1999 and 2000 can be evaluated. The difference of social costs of 1999 and 2000
represents the social benefits (the social costs in 1999 is expected to be higher than that in 2000 due to a
higher safety investment in 2000 than in 1999). As a result, the impact of safety investment on social
benefits for construction projects can be established. A large scale survey is being conducted to acquire
financial and social costs data of construction accidents in Hong Kong. Data on safety investments made
by contractors and public bodies are also being collected. The results are not yet available at the time the
author is writing this paper. It is hoped that some results can be released in the conference to be held in
April/May of 2002.
Reference
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Approach, 5th edition. McGraw-Hill, New York.
Hong Kong Government (1995). Consultation Paper on the Review of Industrial Safety in Hong Kong.
Education and Manpower Branch, Hong Kong Government.
Lee, H.K. (1991). Safety Management: Hong Kong Experience. Lorrainelo Concept Design, Hong
Kong.
Levitt, R.E. and N.M. Samelson (1993). Construction Safety Management, 2nd edition. John Wiley &
Sons, New York.
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Ngai, K.L. and Tang S.L. (1999). Social Costs of Construction Accidents in Hong Kong. Proceedings of
the 2nd International Conference of CIB Working Commission W99 on Implementation of Safety and
Health on Const4ruction Sites, Honolulu, Hawaii, USA, March 1999, pp. 525-529.
Tang, S.L. (1996). Economic Feasibility of Projects, revised edition. McGraw-Hill.
Tang, S.L., H.K. Lee and K. Wong (1997). Safety Cost Optimization of Building Projects in Hong Kong.
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