Any large enterprise, when entering into a contract with a contractor, sooner or later faces violations of HSE requirements by the contractor's employees.
Typically, the top violations on a production site include failure to use PPE, lack of permits, employees entering danger zones, etc.
In this situation, the violation of HSE rules by contractor employees during work negatively impacts the occupational injury rate at the client's site and can certainly be considered a breach of contractual terms.
This means the client has the right to fine the contractor, as penalty clauses for violations are often included in the contract terms, with the amount of fines specified in a contract annex.
It would seem simple: a violation occurs, a report is filed, and a fine is issued. Then we expect that the contractor, having learned their lesson, will no longer violate HSE requirements.
However, in today's reality, things are not quite that simple.
According to legal requirements, an employer cannot recover a fine imposed on the organization from an employee, so the employee might easily repeat the same violation. By paying these fines, the contractor can incur significant losses. The volume of work that promised profit could end up being a disaster for the company.
Aware of these risks, contractors begin to artificially inflate the cost of their work or services to cover potential fines while still making a profit.
Ultimately, this leads to a shortage of service providers. In this situation, the client suffers first: work stops, there is a lack of personnel, and those available cost more than planned.
This is the exact moment when one must correctly place the comma in the famous phrase: 'Pardon impossible, to be executed.'
Instead of imposing full penalties on the contractor, the client can agree to certain contractual terms. For example, the client reduces the fines by 50%, while the contractor develops and implements additional measures to improve working conditions within their company (for instance, purchasing additional PPE or tools for the same amount).
This is a win-win situation: the client gets a contractor with reasonable service costs, the contractor keeps their income within the company to improve conditions rather than paying it into the client's budget — becoming a more attractive employer — and the employee benefits from a safer work environment.