Understanding Influence and Control Risks in Contractor Management October 2015 Jamie McPherson Partner Kaden Boriss Legal Matt Skubis Senior Consultant

Understanding Influence and Control Risks in Contractor Management

October 2015

Jamie McPhersonPartner

Kaden Boriss Legal

Matt SkubisSenior Consultant

AusSafe

Presentation Overview

• What is the legal significance of the concepts of influence and control• How to define influence and control in a multi contractor environment• Pitfalls for effectively managing safety for projects with integrated

operating models an alliance contracts;• Common errors observed where clients / owners have over stepped the

mark with influence and control of contractors;• Impediments and problems that can arise in ensuring safety obligations

for the principal of a project with an integrated operating model;• Can an integrated project model work without the principal taking too

big a responsibility for safety;• Avoiding the potential for contractors to take advantage of the friendly

co-operative “One-Team” alliance approach;• How WHS Obligations for the principal can still be maintained in an

“We’re all friends and working together for a common project goal” environment

Work Health and Safety Act 2011 Section 19

What is the Legal Importance of Influence and Control?

• (1) A person conducting a business or undertaking must ensure, so far as is reasonably practicable, the health and safety of—

(a) workers engaged, or caused to be engaged by the person; and

(b) workers whose activities in carrying out work are influenced or directed by the

person; while the workers are at work in the business or undertaking. (2) A person conducting a business or undertaking must ensure, so far as is reasonably practicable, that the health and safety of other persons is not put at risk from work carried out as part of the conduct of the business or undertaking.

What’s the Business or Undertaking?


• Not defined in the Act – so haw do we know what is part of my business or undertaking?

• The core of the issue that we are discussing today

• Regardless of the contractual structure that is intended to be utilised, as part of the tender process and scoping of the works for the project, the business or undertaking for each participant needs to be clearly defined.

So….Why is it important?


• If a hazard exists which arises out of or is connected with your business or undertaking, you have a health and safety duty in relation to it

• If a hazard exists but does not arise out of your business or undertaking, you don’t.

• IMPORTANT – when applying this test remember that just because a hazard arises out of someone else’s business or undertaking doesn’t mean that it doesn’t arise out of yours as well!

• The biggest issue with current contractor engagement is that this question is not asked.

Project Risk Identification: Most Common Risks Identified:

Blake Dawson: Scope for improvement 2011 – Project Risk – Getting the right balance and outcomes

Time / Delay Events

Site Conditions Design

Scope Inadequacy / Changes

Project Risk Identification: Most Common Risks Missed

Blake Dawson: Scope for improvement 2011 – Project Risk – Getting the right balance and outcomes

Third party

Interface

Scope Inadequa

cies

Health & Safety

Approvals / Consent Design Quality of

WorkConstr & Comm

Pitfalls for effectively clarifying the extent of influence and control over other PCBUs;

Common issues:• Lack of clarity around specific WHS obligations / duties relevant

to the particular PCBU;• Insufficient scoping of project requirements;• Lack of defined project responsibility and ownership;• Lack of independent set of eyes to be able to look at and assess

situations objectively and provide unbiased views, opinions and feedback;

• Complacency;• Inability to effectively manage (influence or control) the

contractor and relationships;• Contracting strategies contributing to the inability to effectively

manage contractors (Greenfields v Brownfields);• Lack of understanding of OHS legal obligations;

Influence and Control: Examples of recent project activities that have increased responsibility

Common errors observed:• Client reviewing Sub-Contractor SWMS when a PC has already

been appointed to manage Sub-Contractors;• Client developing Principal Contractor Audit Schedules for the

PC that the PC would normally determine;• Directing the Principal Contractor during incident investigations

that the PC would normally manage;• Requiring / directing the Principal Contractor to modify their

OHSMS to mirror the clients OHSMS (however the clients OHSMS is not construction work focused);

• Appointing a Principal Contractor post Due Diligence reviews such as Pre-Qualification, however then requiring them to work to / under the clients / owners OHSMS;

Common events observed where clients / owners have muddied the waters;

Common errors observed:• Application of brownfield construction method to greenfields

construction;• Reviews conducted by the client / owner of the PC’s procedures

and plans however only look for client specific requirements rather than including reviews against minimum H&S legal requirements – such as for WHS Management Plans as an example;

• Multiple inputs / POC from the client – adds confusion to the contractor;

• Ineffective communication and relationships between project participants;

Case Study in Action – Construction IndustryGreenfields V Brownfields

Greenfields

Brownfields

Challenges with StrategyGreenfields V Brownfields

Greenfields• Typical Construction with

appointed PC in new / open land;

• May involve appointment of EPC;

• Risks weighted (on a sliding scale) towards the contractor rather than the owner;

• Costs generally borne by the PC;

• Single POC;• Turn key type projects;• Project design well defined

and unlikely to vary significantly;

• Typically EPC Arrangement;

Brownfields• May involve where an

‘Operator’ is already present e.g. Mine, Production Facility etc;

• Generally involves EPCM. EPCC;

• Risks weighted (on a sliding scale) towards the owner – project largely owner managed and funded;

• Multiple POCs;• Could also be used for

maintenance type / shut down work;

• Project design may vary significantly;

Application of Greenfields V Brownfields – Decision Tree

Greenfields

New Construction

No ‘Operator Present’

Lack of skills / expertise in

house to manage

Desired ability to transfer the risks incl cost

Due Diligence

Limited Influence and Control over the Contractor

Application of Greenfields V Brownfields – Decision Tree

Brownfields

New Construction – within existing

facility

Operator Present – and Operator

OHSMS (capable of managing the works)

Adequate in house skills / expertise to

manage

Ability to effectively

manage the risks

Due DiligenceAbility to manage cost

over runsConstant scope creep / change

Greater Influence and Control

Case Study 1: Client had desire for Increased Influence and Control - Applying Brownfields Strategy to Greenfields

Project Scope: Multi $M Oil and Gas Infrastructure projectsProject Background and Decisions made:• PC appointed via Client on-boarding processes (Pre-Qualification,

Bridging, Mobilisation);• Client had a lack of internal construction expertise;• Client accepted / all OHS statistics for the project incl the PC’s;• Risk weighted towards the owner/client – greater influence and

control for the client;• Integrated team approach adopted however contracts showed

the distinct engagement of a PC to manage the construction works package;

• Owner/Client OHSMS may not be flexible enough or capable of managing specific project risks;


Project Scope: Multi $M Oil and Gas Infrastructure projectsIndependent Review identified the following outcomes and risks:• Client had a lack of understanding of contract documents;• Client demonstrated an Inability to be objective – possibly due to

internal reporting requirements and ‘owning’ the PC’s H&S performance;

• Lack of formal assurance program established to monitor the PC - Lack of use of independent sets of eyes to pick up on issues (blinded) – failure to identify minimum OHS legislative compliance gaps;

• Potential Increased Legal Risk to Officers – Due Diligence – especially if blinded by legal compliance gaps (and lack of want of independent audits);

• Poor quality of completion of contractor due diligence reviews (e.g. pre-qualification and bridging reviews incomplete or rushed);


Project Scope: Multi $M Oil and Gas Infrastructure projectsIndependent Review identified the following outcomes and risks:• Over stepping contract and OHS legal duties and directing the PC

on works including wanting to review S/C SWMS, Incident Investigations;

• Lack of understanding that if more than one person has a duty for the same matter, that each person must discharge their duty to the extent to which the person has the capacity to influence and control the matter or would have had the capacity but for an agreement or arrangement purporting to limit or remove that capacity;

• Failure to identify and manage own project hazards and risks (client as a PCBU);

• OHS advisors operating with an operations mentality and directing the PC instead of being the eyes and ears for the client;

• Multiple points of contact instead of as per the contract – confusing the contractor.

Case Study 2: Client Engages Fit out Contractors to then work in PC controlled areas.

Project Scope: Refurbishment of 6 level Shopping Centre and Arcade Project Background and Decisions made:• PC appointed via Client on-boarding processes (Pre-Qualification,

Bridging, Mobilisation);• Client is hands off – appointed PC to manage the construction

work;• Decision made to engage two separate contractors to manage fit

out works when the works have reached an agreed point of practical completion.

• However access is via PC controlled area for both fit out tenancies.

• One fit out contractor is managed under their own system, while the other is managed under the PC’s system;

• Inconsistency with site requirements between PC, Tenancy fit out contractors 1 & 2 but may have the same PCBUs (sub-contractors);

• Engaged independent OHS audits and inspections;

Case Study 2: Client Engages Fit out Contractors to then work in PC controlled areas.

Project Scope: Refurbishment of 6 level Shopping Centre and Arcade Observed Outcomes and Risks:• Inconsistent adherence to OHS rules as contractors may work

across all 3 areas and are managed to different standards;• Client influence and control varies due to methods of

engagement;• PC confused as to how much influence and control they have and

can exercise over the tenancy fit out contractors;• Confusion over who has responsibility for common access areas

including designated emergency exit and evacuation routes;• Objectivity for audits and inspections – removal of subjectivity for

findings and deference to the OHS expert;

Impediments and problems that can arise in ensuring safety obligations for the principal of a project with an integrated operating model.

OHS legislation defines OHS legal duties / obligations for all PCBUs.Ask yourself these questions:1. As part of Due Diligence – am I considered an officer?2. Do we understand the meaning of conducting “Due

Diligence? 3. What due diligence should we do on Contractors /

PCBUs?4. What are we required to do to discharge our duties as a

PCBU?5. Am I fully aware of the legal duties / obligations of all

parties with respect to contract management?6. Are these carefully worded, reviewed by independent

legal expertise specialising in WHS law and implemented into contracts?

7. What role do you play in an integrated operating model?


OHS legislation defines OHS legal duties / obligations for all PCBUs (Owner, Client, Contractor).Ask yourself these questions:8. Is this well defined within the business / contract?9. Do we understand what it actually means?10. What influence and control do we have? And Can we

influence the outcome effectively?11. Who is best placed and capable of managing the

associated risks and costs?12. What if we overstep our role? Are we then seen to

be acting in / taking on additional legal responsibilities that were not committed to?


Alliance / Integrated Operating Model

Consultants

Contractor/s

Owner

OHS Duties ?Influence and Control in an Alliance


Owner / PC Model

Sub-Contract

ors & Consulta

nts

Contractor/s

Owner / Principal

OHS Duties

Influence and Control – Non Alliance Model

?



Consultants

Contractor/s

Owner

Influence & Control

Contractor Management Strategy: How much Influence and Control ?

Where are the risks weighted?

Less Influence & Control

More Influence & Control

ContractorClient

Contractor Management Strategy: How much Influence and Control ?

Where are the risks weighted?

Less Influence & Control More Influence & Control

ContractorClient

The challenges and risks that should be considered with Influence and Control over other PCBUs.

• Apparent feeling of control• Apparent ability to influence the

outcome• Apparent flexibility in design

• Cost blowouts• Discharging Obligations• OHS performance ownership• Drawing a line in the sand• Over stepping defined legal duties• Staffing and Resourcing• In-house knowledge, training,

competence• Objectivity• Complacency


Can an integrated model work without the principal taking too big a responsibility for safety?

Scenario 1: A major incident occurs on site. An investigation is required. • Who has influence or control over the work?• Who gets involved in the investigation? • What OHSMS is involved as part of the investigation

proceedings?• How is independence achieved?• What happens if one or a number of the members / parties to

the alliance or integrated model is found to be deficient?• Is it possible to identify deficiencies relating to specific

responsibilities within the alliance or integrated model?• Who tracks the actions to closure and ensures that they have

been completed to ensure they are effective?• Will the client / owner be dragged into the incident if it occurs

with a Sub-contractor?


Scenario 2: One of the parties of the Alliance is not pulling their weight with regards to OHS performance.• Who has influence or control over the work?• How does this reflect on the owner and others involved? • How can this be managed?• Who then manages the under performer?• How much assistance is provided if at all?• To what extent does the owner step in the assist with the

management of H&S for the project?• If this occurs what are the ramifications of doing so?• Will the others then slacken off if the owner takes on more

responsibility that originally intended?

Avoiding the potential for contractors to take advantage of the friendly co-operative ‘One Team’ alliance approach

Avoiding the potential for contractors to take advantage of the friendly co-operative ‘One Team’ alliance approach

• Balanced Effort

Client

Consultants

Contractor

Client

Consultants

Contractor

• Unbalanced – Client being taken advantage of


The Importance of Consultation and Coordination:


The Importance of Consultation and Coordination:• It should never be assumed that someone else is taking care of

a health and safety matter. A PCBU must find out which duty holders are doing what and work with them in a co-operative and co-ordinated way so that risks are eliminated or minimised so far as is reasonably practicable.

• When entering into contracts, a duty holder should review the job to be undertaken, discuss any safety issues that may arise and how they will be dealt with and communicate their safety requirements and policies. Remember that a duty holder cannot transfer their responsibilities to another person.

Avoiding the potential for contractors to take advantage of the friendly co-operative ‘One Team’ alliance approach• Establish independent resources for WHS - for example conducting

audits and assurance by external providers;• Where possible remove risks of bias and complacency – maintaining

independence;• Setting boundaries around support provided to other parties;• Carefully planning alliance organisation structures;• Establishing alliance responsibilities and protocols for recourse if

and when problems rise;• Provide training to project personnel so they understand the

ramifications of over stepping the line of responsibilities and identify situations where contractors may stretch the friendship;

• Effectively identifying and allocating responsibility for managing risks by those who are capable of managing the risks, rather than simply transferring the risk;

• Understanding who has ‘influence and control’ over the work and determining the right balance

So What is important? Let’s take a Closer Look at - Primary Duty of Care

Primary Duty of Care (WHS Act s19)• PCBU must ensure SFAIRP the H&S is not put at risk of workers engaged or

caused to be engaged by the person and workers whose activities in carrying out work are influenced or directed by the person.

Application:• Where there are multiple duty holders in respect to the same activities, a

PCBU may comply with the duty by ensuring that the relevant matters are attended to by another person.

Discussion:• A PCBU may not have to actively take any steps for the provision of safe

plant, training, wellfare facilities etc if another PCBU is doing so, however the first PCBU may be in beach of their duty of care if they do not ensure that the other PCBU has discharged the obligations. Therefore first PCBU must take steps to identify and verify the actions taken by others to meet the obligation.

The relevance of control?

A person may be found to have control over a relevant matter if they have the capacity to do so, whether that capacity is exercised or not.

Discussion:Control may arise from: • a legal liability to take control of

the work activity (e.g. under the terms of the contract) or

• from a practical ability to do so (e.g. being able to direct people on site). That is, what a person does and what they are able to do will determine if they have control.

Client

Contractor

Others

Safe Work Australia - How to determine what is reasonably practicable to meet a health and safety duty


More than 1 person can have a duty (WHS Act s16)• If more than 1 person has a duty for the same matter, each person— (a) retains responsibility for the person’s duty in relation to the matter; and (b) must discharge the person’s duty to the extent to which the person has the capacity to influence and control the matter or would have had that capacity but for an agreement or arrangement purporting to limit or remove that capacity. Discussion:• This clearly sets out that a duty holder is expected to

comply with their duties only so far as they have the capacity to influence and control relevant matters.

• The more influence or control over the work, the greater the number of steps that need to be taken by the PCBU to discharge the duty. It may not be reasonable to require a person to do things that are beyond their control or to require them to acquire the necessary control.


More than 1 person can have a duty (WHS Act s16)An inability to control relevant matters must necessarily imply that it is either:• Not possible for duty holders to do anything, or• It is not reasonable to expect them to do so.Control is therefore an implied element in determining what is reasonable practicable.

The intention that control is implicit in identifying what is reasonably practicable is consistent with decisions of courts in Australia. Most of these decisions have assumed the relevance of control and have dealt with questions about whether, in particular circumstances, the duty holder had control or whether the duty holder should have exercised the control they had.

Safe Work Australia - How to determine what is reasonably practicable to meet a health and safety duty – guideline Safe Work Australia

Reliance on someone else to take necessary action

Engaging a specialist or technical expert to carry out work. The PCBU is entitled to rely on the expertise of the specialist or technical expert.However in doing so the PCBU still carries some responsibility for ensuring the requirements of the WHS Act are met, for example: it is still incumbent on the PCBU to ensure so far as they are reasonably able, that the specialist or technical expert:• Does in fact have the required expertise to

ensure the work can be carried out safely;• Has in place the systems, processes and

procedures to ensure the work can be carried out safely;

• Is carrying out the work in a manner which does not create a health and safety risk for the PCBUs own workers or others at the workplace.

How WHS obligations for the Principal can still be managed in an allied approach working for the common project goal situation.

Pealing it back to the basics: • Understanding and conducting relevant due diligence

requirements including of other PCBUs; Consideration given to the context and scope the Principal

will play within the Alliance model. Checking that other PCBUs (experts etc) have required

expertise, systems, processes and procedures to ensure the work can be carried out safely;

Conducting assurance to check that the PCBU is working in a manner that does not create a H&S risk to the PCBUs own workers or others.

• Understanding WHS duties of PCBUs;To assist with defining the boundaries of cross over and when to handover issues etc.


Pealing it back to the basics: • Communicating the relevant roles of the Principal within the

other Alliance members;To assist other Alliance members to understand the role of the Principal, which also helps to push back on requests that the Principal should not be getting involved in.

• Conducting regular reviews of performance including the roles of the Principal and other PCBUs to ensure they are staying on track, and not stepping outside their envelope;

To check in and monitor progress against committed functions to ensure that risks related to taking on more accountability than that committed to are effectively contained. Also helps in checking understanding of the Principal’s roles and that these are understood.


Pealing it back to the basics: • Understanding the contract – not just at establishment but

during execution phase as well;To assist in managing issues as they arise especially where disputes arise.

• Understanding the scope and influence the Principal has within the Alliance model;

To assist with disputes and resolution of disputes and when action is required, how to take action.

Documents

Understanding Influence and Control Risks in Contractor Management October 2015 Jamie McPherson Partner Kaden Boriss Legal Matt Skubis Senior Consultant