Contractor Audits – New Survey Shows Rising Costs of Compliance

Within the oil and gas industry, HSE audits of contractors are on the increase.  There are a number of reasons for this:

  • Audits are a valuable part of a safety management system;
  • It is necessary due diligence for a  host company that hopes to limit its liability if there is an incident; and
  • The SEMS rules offshore absolutely require it.

However, there has not been very much research that quantifies the extent to which audits have increased over time, how much those audits cost contractors and other trends.

To help address that gap, we at Lifeline Strategies surveyed industry on audit trends.   Using an online survey we asked contractors about their experiences with audits.    In the next couple of blog postings, we will explore some of the results of this original research.

Are audits increasing?

Roughly 80 percent said that their companies have seen an increase in the number of audits their customers perform in the last five years.  The increase is striking; respondents said the number of audits has increased by more than 60 percent!

What do audits cost?

Cost includes the salaries of managers who meet with  auditors, as well as the costs of preparation, follow-up and maintaining a records system for audits.   Based on the responses, each audit costs a contractor company an average of $3,400, but, significantly, fully half of the respondents said their audit cost was roughly $5,000 per event.   One operator who I discussed this with pointed out that this doesn’t include the cost to operators, which may be more than $5,000 per audit.

The most eye-popping result – the largest company in the survey averages three customer audits a month.   At that rate the cost of compliance may be as much at $180,000.   That is not money spent training personnel to work safely, purchasing PPE or managing safety programs.  It is just the cost of proving to customers that those programs are in place.

Learn More at Our Contractor Audit Workshop

Faced with those sorts of costs and with the even higher cost of failing an audit, how important is it to follow best practices in preparing for audits?   We are starting a new workshop that teaches contractors how to stay on top of audits and turn them from a near death experience to a chance to show off your company’s safety performance.    Classes will be held Thursday, February 13th in Houston and Wednesday, February 19th in Lafayette.  Learn more on our classes and workshops page.

 

3 Replies to “Contractor Audits – New Survey Shows Rising Costs of Compliance”

  1. “Audits are a valuable part of a safety management system” If for no other reasons than Reputation, Insurance Rates and Productivity we all want to provide SAFE work conditions with or without outside audits.

    “It is necessary due diligence for a host company that hopes to limit its liability if there is an incident” So what benefit is there in ‘Hold Harmless’ clauses in every contract?? In fact, my interpretation of many is we have no recourse even with Gross Negligence at sites we work.

    “The SEMS rules offshore absolutely require it” As the regulations deepen we drown in expenses and our charges have to rise. Consider how many mid or low level positions are not made available with expenses of $180,000.

    1. A very good perspective John. hold harmless clauses very quickly move this from the safety arena and into the legal arena. That said, OSHA (and BSEE offshore) don’t care about contractual clauses and the agency has made it clear as recently as its temporary worker outreach this fall that it expects host companies to perform due diligence to make sure contractors comply with clearly enunciated policies.

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