Regulations (Preambles to Final Rules) - Table of Contents Regulations (Preambles to Final Rules) - Table of Contents
• Record Type: Safety Standards for Scaffolds Used in the Construction Industry
• Section: 4
• Title: Section 4 - IV. Economic Assessment and Regualtory Flexibility Analysis

IV. Economic Assessment and Regulatory Flexibility Analysis

Introduction

Executive Order (EO) 12866 requires regulatory agencies to conduct an economic analysis for rules that meet certain criteria. The most frequently used criterion under EO 12866 is that the rule will impose annual costs on the economy of $100 million or more. OSHA's final standard for scaffolds in construction does not meet this criterion, or any of the other criteria specified by EO 12866, and therefore does not require an economic analysis. Nevertheless, OSHA has decided to conduct such an analysis to provide the regulated community with as much information about the rule as possible. The Regulatory Flexibility Act of 1980, as amended in 1996, requires OSHA to determine whether the Agency's regulatory actions will have a significant impact on a substantial number of small entities. Making this determination requires OSHA to perform a screening analysis to identify any such impacts. Consistent with these requirements, OSHA has prepared this economic analysis and regulatory flexibility screening analysis of the final rule for scaffolds in construction. The final rule being published today will replace the outdated consensus standard addressing scaffolds in construction that was adopted by OSHA in 1971 and has remained largely unchanged since then.

This analysis includes a description of the industries affected by the regulation, an evaluation of the risks addressed, an assessment of the benefits attributable to the final standard, a determination of the technological feasibility of the new requirements, an estimate of the costs of compliance with the standard, a determination of the economic feasibility of compliance with the standard, and an analysis of the economic and other impacts associated with this rulemaking, including those on small businesses. The following is a summary of this analysis, which is available from OSHA's docket office.

The Final Standard for Scaffolds in Construction

This final standard for scaffolds in the construction industry makes many changes to the consensus standard adopted by OSHA in 1971 and codified at 29 CFR 1926.450 to 1926.453 (Subpart L of OSHA's construction industry standards). Appendix A of the Final Economic Analysis compares, on a provision-by-provision basis, the final standard with the standard that has been on the books since 1971. In this economic analysis, the standard being published today is referred to as the final standard, while the standard it replaces is termed the "existing" standard.

One of the important distinctions between the two standards is the clarity and simplicity of the final standard, which is written in language that people in the construction industry use to describe scaffolds and their components. Technical terms required to convey information accurately and unambiguously are defined clearly in paragraph (b) of final rule 1926.450. The final rule also updates the regulatory text to reflect changes in technology that have occurred in the quarter century since the existing standard was written. These changes will permit scaffold manufacturers and users to benefit from technological change and give them additional flexibility in using up-to-date equipment. The final standard also clarifies and resolves issues of terminology or areas of confusion that have been identified by scaffold users over the years. In the past, OSHA has addressed implementation problems of this sort in letters of interpretation or compliance memoranda or directives; the final standard corrects and revises the provisions that gave rise to these interpretations. Finally, the final standard adds protection for employees using scaffolds. The principal areas in the new standard that have been strengthened are employee training, protection from electrical hazards, and procedures for employees engaged in the erection and dismantling of scaffolds. These requirements reflect OSHA's long experience in accident investigation in the construction industry, as well as an extensive analysis of the leading causes of scaffold-related fatalities and injuries.

Affected Industries

The requirements of the final standard apply to all establishments in the construction industry. As classified by the 1987 Standard Industrial Classification (SIC) manual, the industry can be divided into three broad types of activities: building construction general contractors (SIC 15), heavy construction general and special trade contractors (SIC 16), and construction by other special trade contractors (SIC 17).

There are 572,850 establishments in the construction sector employing approximately 4.7 million employees. Small establishments with one to nine employees, which represent 82 percent (or 469,349) of establishments, collectively employ only 1.4 million employees (30 percent). The number of construction workers is estimated to be approximately 3.6 million. OSHA estimates that there are approximately 2.34 million construction workers (65 percent of all construction workers) who frequently work on scaffolds and who would be affected by the final standard for scaffolds.

Evaluation of Risk and Potential Benefits

Of the 510,500 injuries and illnesses reportedly occurring in the construction industry annually, an estimated 9,750 are related to scaffolds. Similarly, of the estimated 924 occupational fatalities occurring annually among construction employees, at least 79 fatalities are associated with work on scaffolds. OSHA estimates that the new requirements in the final rule will prevent 47 of these fatalities and 4,455 of these injuries annually; these numbers are above and beyond the fatalities and injuries that would be prevented if construction employers complied with OSHA's existing scaffold standard. OSHA estimates that the total value of the cost savings associated with this revised standard is $90 million per year. This estimate of cost savings considers only those scaffold related injuries that involve lost workdays.

Costs and Technological Feasibility

The total estimated costs associated with the final standard amount to about $12.62 million annually. The largest single cost ($5.85 million) is associated with inspections of non-suspended scaffolds before use. The remaining costs are attributable to requirements for additional training for employees exposed to potential hazards involving work on scaffolds ($5.30 million) and for fall protection for employees erecting and dismantling scaffolds(1) ($1.47 million). Table ES-1 shows the annual costs of compliance associated with the final rule.


   Table ES-1. -- Annual Costs of Compliance With the Final Rule for
                      Scaffolds in Construction
_______________________________________________________________________
                                                        |
            Provision                                   | Annual Cost
________________________________________________________|______________
                                                        |
Training:                                               | $5,298,708
  Training for Workers Who Use Scaffolds............... |  3,014,949
  Training for Scaffold Erectors, Dismantlers,          |
   Inspectors and Repairers............................ |  2,283,759
Fall Protection for Erectors and Dismantlers of         |
 Scaffolds(1).......................................... |  1,466,431
Scaffold Inspection.................................... |  5,851,823
                                                        | __________
      Total............................................ | 12,616,962
________________________________________________________|______________

Source: US Department of Labor, OSHA, Office of Regulatory Analysis, 1996.

(1) This requirement has a one year delayed implementation date. Because the requirements of the final standard can be met with existing equipment and methods, the standard is technologically feasible.

Economic Impacts

Compliance with the requirements of the final standard has been determined to be economically feasible and is not expected to produce significant adverse economic impacts on firms in the construction industry. The estimated compliance costs represent less than 0.002 percent of construction revenues. Given the minimal price increase necessary to cover the costs of the final standard, employers should be able to pass these compliance costs on their customers. However, even if all costs were absorbed by the affected firms (a highly unlikely scenario), the average reduction in profits would be only 0.04 percent.

Regulatory Flexibility Screening Analysis

Pursuant to the Regulatory Flexibility Act of 1980 as amended (5 U.S.C. 601 et seq.), OSHA has assessed the small-business impact of the final standard for scaffolds used in construction, and has certified based on that assessment and the underlying data, that the standard will not have a significant impact on a substantial number of small entities. The controlling consideration for a regulatory flexibility analysis is whether the standard would impose significant economic impacts on a substantial number of small entities. The significance of any economic impact is measured by the effect on profits, market share, and an entity's financial viability.

The small establishment size standards established by the U.S. Small Business Administration (SBA) for the construction industry, which are based on establishment receipts, are $17 million for establishments in SICs 15 and 16, and $7 million for establishments in SIC 17. Of the 572,850 establishments affected by the revised standard, 493,637(1) establishments, or about 86 percent of all construction establishments, are considered small establishments as defined by the SBA.

__________
  Footnote(1) 144,671 establishments in SIC 15, 28,206 establishments in
SIC 16 and 320,637 establishments in SIC 17.

OSHA assessed the potential economic impacts of the rule on all affected establishments and has concluded that the rule is economically feasible and will not impose a substantial burden on construction employers. As indicated above, firms would only have to increase the price charged for their services by, at most, 0.002 percent of the value of their sales in order to recover the money they expended on compliance. In the unlikely event that firms could not pass any of these costs to their customers and had to absorb all of the costs themselves (a highly unlikely scenario), the average reduction in profits caused by these costs would be only 0.04 percent. On average, the value of receipts for establishments in the construction industry is estimated to be $1.12 million. Firms with sales in this range clearly fall within the SBA size standard.

To ensure that even the smallest firms in this industry would not be significantly impacted by the costs of compliance associated with the final standard, OSHA also examined the financial profile for small construction establishments with 9 or fewer employees at the four-digit SIC code level, which constitutes the overwhelming majority of firms in this industry. To examine the impact of the standard on the smallest and potentially most affected firms, OSHA made a series of extreme-case assumptions: that all employees in these establishments use scaffolds in the course of their work and that these establishments have not implemented any of the new work practices or procedures required by the final rule. In addition, OSHA assumed that two employees at each firm would require fall protection systems and training in the erection and dismantling of supported-scaffolds. Assuming a baseline turnover rate of 15 percent, and using the formulas presented in Chapter V of the Economic Analysis, such a small establishment, which represents an extreme-case impact situation, would incur compliance costs of $603(2) annually.

__________
  Footnote(2) Annual 15 minute-training for workers who use scaffolds =
$11, annual training cost for erectors and dismantlers = $130, annual
cost of fall protection = $106, and annual scaffold inspection cost =
$356.

Table ES-2 presents the results of this extreme-case analysis. It shows estimated compliance costs and economic impacts relative to revenues and pre-tax income for small businesses by four-digit SIC code level. OSHA compared the baseline financial data for these firms with OSHA's estimate of the standard's annual compliance cost by computing compliance costs as a percentage of revenue. This approach (Table ES-2) reflects extreme case impacts because it assumes that employers have to recover the costs of achieving compliance by increasing their prices. Under this full cost pass-through scenario, the maximum average expected price increase required to recover the full costs of compliance with this standard would be extremely small, approximately 0.1 percent. The four-digit industry estimated to experience the highest potential price increase would be Painting and Paper Hanging (SIC 1721), where firms could have to increase prices by 0.18 percent. Again, since these impacts are based on extreme-case costs, they are likely to be overestimating.

Under the second scenario used to test the impacts of actions on markets -- the no cost pass-through scenario -- firms are assumed not to be able to pass any of their costs through to their customers in the form of price increases. If no costs can be passed on, firms would have to absorb these costs entirely from their profits (a highly unlikely scenario). Using this assumption, the average expected decline in profits for these very small firms would be only 1.44 percent. The largest potential impact of the standard would be anticipated in the Plastering, Drywall and Acoustical industry (SIC 1742), where firms could experience a decline in profits of 2.71 percent. Such impacts are not large enough to be significant because they mean, for example, that the profit rate for such a company would decline only from 5.0 percent to 4.9(3) percent. As noted, these figures are based on highly conservative assumptions and are therefore likely to overestimate standard's impact.

__________
  Footnote(3) $22,265/$445,303 = 5.0%, $22,265 x (100 - 2.71%)
/$445,303 = 4.9%.

Because fixed costs, such as those for preparing training materials, are larger as a percentage of revenues the smaller the firm, the smallest firms will experience the greatest economic impacts. If the smallest firms, with extreme-case costs, will experience no significant impact, it is reasonable to conclude that larger firms will not experience significant economic impacts. Thus, because this standard will not have a significant impact either on the smallest establishments (those with 9 or fewer employees) or on the typical establishment in this industry, OSHA certifies that this final standard will not have a significant economic impact on a substantial number of small entities, as defined by the SBA.


    Table ES-2. -- Economic Impacts of the Final Scaffold Standard on
           Construction Businesses With 5 Employees. By 4-Digit
               SIC, Using Worst-Case Compliance Assumptions
_______________________________________________________________________
                                                       |   Value of
                                                       |   industry
                    SIC industry                       |  receipts per
                                                       | establishment
                                                       |      [a]
_______________________________________________________|_______________
                                                       |
  15  Building Construction-General Contractors........|   $1,039,353
1521  General Contractors-Single-Family Houses.........|      824,664
1522  General Contractors-Residential Buildings........|      989,058
1531  Operative Builders...............................|    2,459,972
1541  General Contractors-Industrial Buildings &       |
 Warehouses............................................|    1,159,689
1542  General Contractors-Non-residential Buildings....|    1,278,174
  16  Heavy Construction Other than Building           |
 Construction..........................................|      934,365
1622  Bridge, Tunnel and Elevated Highway Construction.|    1,312,204
1623  Water, Sewer, Pipeline and Communications........|      832,093
1629  Heavy Construction, nec..........................|      717,664
  17  Special Trade Contractors........................|      471,876
1711  Plumbing, Heating & Air Conditioning.............|      520,496
1721  Painting and Paper Hanging.......................|      331,775
1731  Electrical Work..................................|      463,498
1741  Masonry, Stone Setting...........................|      357,551
1742  Plastering, Drywall, Acoustical..................|      445,303
1743  Terrazzo, Tile, Marble and Mosaic Work...........|      404,702
1751  Carpentry Work...................................|      414,681
1752  Floor Laying and Other Floor Work, nec...........|      573,175
1761  Roofing, Siding and Sheet Metal Work.............|      470,902
1771  Concrete Work....................................|      510,955
1791  Structural Steel Erection........................|      541,947
1793  Glass and Glazing Work...........................|      555,960
1796  Installation or Erection of Building Equipment,..|
 nec...................................................|      581,564
1799  Special Trade Contractors, nec...................|      504,453
                                                       |     _________
    Average............................................| .............
_______________________________________________________|_______________

    Table ES-2. -- Economic Impacts of the Final Scaffold Standard on
           Construction Businesses With 5 Employees. By 4-Digit
        SIC, Using Worst-Case Compliance Assumptions -- Continued
_______________________________________________________________________
                |                         |
  Pre-tax       |     Compliance costs    |    Compliance costs
 income per     |      as a percent of    |     as a percent of
establishment   |         revenues        |     pre-tax income
    [a]         |            [b]          |
________________|_________________________|____________________________
                |                         |
    $56,692     |               0.06      |             1.06
     61,225     |                .07      |             0.98
     73,430     |                .06      |             0.82
     81,999     |                .02      |             0.73
     52,713     |                .05      |             1.14
     61,972     |                .05      |             0.97
     59,460     |                .06      |             1.01
     47,717     |                .05      |             1.26
     50,430     |                .07      |             1.19
     50,019     |                .08      |             1.20
     32,888     |                .13      |             1.83
     31,545     |                .12      |             1.91
     30,664     |                .18      |             1.96
     34,411     |                .13      |             1.75
     25,462     |                .17      |             2.37
     22,265     |                .14      |             2.71
     28,820     |                .15      |             2.09
     32,672     |                .15      |             1.84
     39,949     |                .11      |             1.51
     30,680     |                .13      |             1.96
     36,386     |                .12      |             1.66
     36,130     |                .11      |             1.67
     32,852     |                .11      |             1.83
     30,841     |                .10      |             1.95
     40,509     |                .12      |             1.49
________________|_________________________|___________________________
  ...........   |                .10      |             1.44
________________|_________________________|___________________________

  Source: U.S. Department of Labor, OSHA, Office of Regulatory Analysis,
1996.
  [a] Based on Small Business Administration, Office of Advocacy,
Table 3: The Number of Firms, Establishments, Employment, Annual
Payroll, and Estimated Receipts by Industry and Firm Size, 1993.
  [b] Average revenue per establishment x mean profit rate for SIC
(derived from Dun and Bradstreet Information Services, Industry
Norms and Key Business Ratios 1994-95) x conversion formula based on
the federal corporate tax schedule.
  [c] Annual cost of compliance of 603 per establishment assumes that
all workers (5) would require training in the initial year and that
all new workers in subsequent years would require training. Two
workers will be trained in dismantling and erecting procedures.
Estimates also assume that fall protection will be required for
erectors and dismantlers and that inspections of non-suspended
scaffolds will be required.
  nec=Not elsewhere classified.

In addition, OSHA has drafted the final standard for scaffolds in the construction industry to achieve adequate protection for affected employees while imposing minimal impacts on small employers. For example, the final rule maintains the performance-oriented approach of the proposed standard, allowing employers the flexibility to take workplace conditions into account when framing their compliance strategies. In addition, OSHA considered and adopted several alternatives designed to minimize small business impacts. For example, revisions reflected in the final standard's requirements for fall protection (grandfathering existing guardrail systems and allowing some use of crossbracing in lieu of guardrails) will enable small entities to minimize their compliance burdens. Accordingly, OSHA has determined that the final rule effectively addresses small employer concerns.

[61 FR 46026, Aug. 30, 1996]

Regulations (Preambles to Final Rules) - Table of Contents Regulations (Preambles to Final Rules) - Table of Contents