sould you outsource your ehs compliance?

OUTSOURCING YOUR COMPANY’S ENVIRONMENTAL, HEALTH and SAFETY FUNCTIONS

Reduced liability

“Your EHS Compliance is our Business”

TABLE of CONTENTS Compliance with EHS Regulations through Outsourcing ............................... 1 What Exactly is Outsourcing? ........................................................................... 2

Why Outsource? .............................................................................................. 2 The Primary Outsourcing Concerns ................................................................. 6

Is a Partnership Right for My Company? ...................................................... 6 How Much Work is Involved? ......................................................................... 7 Does the Outsourcing Firm Know My Business? ........................................ 7 What Control Will I Have Over the Outsourcing Firm? ................................ 7 What is the Cost of a Partnership? ................................................................ 8 Costs vs. Benefits ........................................................................................... 9

What Factors Should I Consider in Selecting a Provider? ............................ 10 What Are the Success Factors of an Outsourcing Program? ....................... 14 What Are the Risks: Outsourcing Versus In-house Personnel? ................... 15 Case Study ........................................................................................................ 16

Options of Outsourcing ................................................................................ 16 Benefits of CMI’s Partnership Program .......................................................... 18

General ........................................................................................................... 18 Reduce EHS Risks ........................................................................................ 18 Reduce Personnel Issues ............................................................................. 19

Conclusion ........................................................................................................ 20


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Compliance with EHS Regulations through Outsourcing

This manual was compiled for organizations who are exploring the alternative of

outsourcing (to a third-party consulting firm) their environmental, health and safety

(EHS) functions. Companies who have consciously made the decision to outsource

other non-core spend functions may have already realized the numerous benefits of

having a third-party provider, experienced in these functions, take on the role of

traditional internal resources. These companies have found that outsourcing these

non-core functions allow their internal resources to concentrate on the day-to-day

operations of their core business activities. Functions such as payroll, legal, facility

management, accounting, human resources, maintenance, IT, mailroom, purchasing

and other support activities can be successfully outsourced to providers experienced

in these areas. Companies subjected to EHS issues as part of their operations can

also view these activities as non-core support functions; and many have already

successfully implemented EHS outsourcing programs. The purpose of this manual

is to present the issues associated with outsourcing EHS activities in order to make

an informed decision on whether or not this is the right choice for your firm.


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What Exactly is Outsourcing?

Wikipedia defines “Outsourcing” as the contracting out of a business process, which

an organization may have previously performed internally or has a new need for, to

an independent organization from which the process is purchased back as a service.

At CMI, we define Outsourcing as a Partnership between the client and CMI. The

value of this arrangement is that CMI takes on the

responsibility of pre-defined activities to assure

compliance with applicable EHS regulations that impact

facility operations. As part of our responsibility, CMI

assumes accountability for a facility meeting applicable

federal, state and local EHS regulations.

Essentially, CMI acts as your in-house EHS staff either supplementing or replacing

internal employee(s) performing these functions. This manual is aimed at providing

the necessary information on how to initiate the first steps towards initiating and

implementing a successful Partnership Program.

Why Outsource?

Outsourcing, in general, has been around for many years and has become an

integral part of operations. Companies outsource different functions for different

reasons.

With the advent of a global market, businesses have been forced to dedicate an

increasing amount of resources toward achieving higher levels of productivity and

efficiency as well as reduce costs and potential liabilities associated with in-house,

non-core employees. In the quest to maintain profitability, many have been forced to

concentrate on core competencies, often to the detriment of areas ancillary to the

manufacturing or other business processes.


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While EHS compliance remains a necessity for a successful business, the general

shift in focus to reduce costs and liabilities has caused companies to assess

alternate options. For many, the answer was found in outsourcing its EHS

compliance management. With the focus on

maintaining productivity and profitability, many

manufacturers are looking for a better solution to

their EHS compliance needs. Companies simply

don’t have the time and resources to comply with

and monitor EHS requirements and dealing with

providers can be a prohibitively time-consuming

option. Current trends indicate companies are

focusing on comprehensive options that work

under a fixed cost, shifting liability, and guarantee results.

Ensures Federal, State, and Local Regulatory Compliance

Choosing to outsource the EHS function ensures that your organization will remain

compliant with all federal, state, and local regulations. An environmental service

Top 10 Reasons Companies Outsource*

1. Reduce and control operating costs

2. Improve company focus

3. Gain access to world-class capabilities

4. Free internal resources for other purposes

5. Resources are not available internally

6. Accelerate reengineering benefits

7. Function difficult to manage/out of control

8. Make capital funds available

9. Share risks

10. Cash infusion

* Surveys completed by the Outsourcing Institute


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provider will be ahead of the curve on all regulatory compliance matters, mitigating

the risks associated with non-compliance for your organization. Compliance services

can range from full program development and execution; to planning, document

preparation, and permitting; to compliance audits. A quick audit by a qualified EHS

team can pinpoint any compliance concerns and provide the proper solutions to

ensure compliance moving forward.

Maximizes Cost Savings and Boosts Efficiency

Staffing an entire EHS department can help your organization maintain compliance

and safety; however, it does come with substantial costs. The cost for building a

multi-employee EHS department at your facility may not be worth the value when

you consider the amount of resources required – which include constant training,

hiring costs, equipment and tools, and employee compensation and benefits. Not to

mention the battle with inefficiencies as an internal team grows and learns.

Outsourcing EHS allows you to invest in a well-trained team of experts, equipped

with all the tools and resources they need to get the job done – plus you don’t need

to worry about their compensation. The cost savings experienced by outsourcing can

be invested elsewhere to help business growth.

Expertise for All EHS Occasions

Just like any other department, internal EHS professionals are occasionally

presented with instances they have never seen or experienced before. Chances are,

if you’re outsourcing EHS, your provider will have a team member capability of

handling these type situations. Having an expert team of EHS professionals at your

service helps make certain that your organization is covered in all situations; routine

or emergency.

Ensures Employee Safety

Employee safety must be a priority for all organizations. There is no margin for error

when dealing with the safety and well-being of employees, and for an organization

with minimal or no internal EHS staff, safety is often neglected in order to keep costs

down. Outsourcing EHS can ensure that employee safety is a top priority, as

qualified EHS providers have the means and experience necessary to develop


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proper safety protocols and procedures. Safety audits conducted by an expert EHS

provider will uncover possible safety hazards and prevent catastrophes before they

happen.

Manages Risk and Lowers Liability

Outsourcing EHS can effectively mitigate environmental, health, and safety risks,

allowing your organization to reduce its liability and operate more safely. As a result,

a safer workplace translates to lower liability and workers comp insurance costs,

making the decision to outsource EHS even wiser.

Allows Focus on Core Competencies

Outsourcing EHS allows you to focus on the core aspects of your business, without

sacrificing environmental, health, and safety integrity. Staffing an in-house EHS

department certainly has some benefits too; however, outsourcing the planning,

development, and execution of environmental, health, and safety functions will

ensure that your company is operating efficiently, compliantly, safely, and optimally.


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The Primary Outsourcing Concerns

Companies who are considering implementing an outsourcing program generally

have the same concerns as follows:

“Is a Partnership right for my company?”

“How much work is involved?”

“Does the Partnership firm know my business?

“What control will I have over the Partnership firm?

“What is the cost of a Partnership?”

“What factors should I consider in selecting a

provider?”

“What are the success factors?”

“What are the risks?”

“How does it work?”

Is a Partnership Right for My Company?

A Partnership is a viable option if you:

Need to comply with EHS laws and regulations.

Want to improve your EHS performance.

Feel that your company’s approach to EHS performance is a liability.

Lack time and/or resources to effectively manage your EHS duties.

Want to reduce costs and liabilities associated with EHS compliance.

Want to reduce head count and internal issues dealing with in-house non-core

personnel

You may have all or a few of these reasons, but the bottom line typically is the cost

and liability involved versus hiring or using in-house personnel to address your EHS

concerns.


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How Much Work is Involved?

Outsourcing may involve some up-front time. Time is typically needed to define just

what tasks the outsourcing provider will conduct. The compliance tasks may be

shared by in-house staff and the outsourcing provider can handle others. Initial

discussions are necessary in order for the provider to understand your needs. Also,

a tour of your facility will help identify the EHS requirements that are applicable to

your facility. Bidding these functions to several companies that provide outsourcing

services is another consideration and may help determine the best value for your

company. Either way, once these initial activities are completed the time needed to

support the provider is minimal. You must also compare the internal work and costs

associated with your HR department recruiting, interviewing and culling the list of

direct hiring non-core internal personnel versus the time expended in retaining a

provider.

Does the Outsourcing Firm Know My Business?

The answer lies in the provider selected. Companies offering EHS outsourcing may

or may not have specific experience with similar facilities. One of the criteria in your

selection may be having specific industry experience. However, the significance of

this selection factor may be outweighed by the provider’s knowledge and experience

of the various EHS regulations that are applicable to your industry. This concern

also needs to be compared to finding an experienced in-house employee that knows

your business and all facets of applicable EHS issues.

What Control Will I Have Over the Outsourcing Firm?

Your control will be established in the terms and conditions of the outsourcing

agreement. Once the outsourcing scope is established, your involvement in

directing the day-to-day activities should be minimal. This is especially true if the

provider assumes the responsibility of acknowledging and addressing the numerous


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applicable environmental and health and safety regulations that are relevant to your

facility. Your control can be what you want it to be and would be specified within the

terms of the contract. You should also be able to modify the services included in the

outsourcing agreement at any time during the contract. Communication with your

provider is the key. The ability to terminate the agreement should be less onerous

than dismissing an employee. Your termination fee should only include the costs for

work conducted by the provider to the point of termination.

What is the Cost of a Partnership?

Costs for implementation of a CMI Partnership Program

will vary with the number of activities ultimately agreed

upon in the scope of work. At CMI, we call this scope

our Strategic Plan. The Strategic Plan is comprised of a

list of tasks that CMI will assume as part of our

responsibility under the contract. Once this is

determined, CMI will issue a formal proposal that includes this Strategic Plan

outlining the scope of activities and programs and associated timeframes.

Typically, the overall costs for a comprehensive EHS Partnership should be

approximately 50% less than the cost of a full-time in-house EHS employee. This is

only a part of the apparent savings realized by our clients. Other hidden real and

potential cost savings are listed in the section Benefits of CMI’s Partnership

Program.

One of the benefits you should realize with a Partnership is that your costs are

established for the year and incurred in equal monthly installments. This provides

companies with reliable and consistent costs that will not rise throughout the contract

year.


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Costs vs. Benefits

A typical direct cost comparison estimate between hiring an in-house EHS

professional and contracting with an outsourcing provider is indicated below:

Factor Direct Hire CMI Partnership

Initial Recruitment/HR $15,000 N/A

Salary (Mid-Level EHS) $75,000 N/A

Benefits (33% of salary) $25,000 N/A

EHS Support* $15,000 N/A

Typical Partnership Cost (annual)** N/A $65,000

Total $130,000 $65,000

Outsourcing to address EHS compliance results in approximately 50% cost savings

per year. Over a ten (10) year period this would result in a savings of an estimated

$665,000. This is the primary reason why more and more companies are looking into

outsourcing their EHS compliance function.

This comparison doesn’t include other potential virtual costs of a direct hire, nor

include the costs of replacing a professional that leaves the company.*** These

considerations are discussed under Benefits of CMI’s Partnership Program.

* The EHS support line item represents a typical annual budget for outside support of services not able to be provided by the in-house EHS person.

** Total annual cost for similar in-house services as well as outside provider needs. *** The Society of Human Resource Management estimates the cost to replace an employee

varies from 50 – 400% of their annual salary


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What Factors Should I Consider in Selecting a Provider?

Choosing your provider involves establishing criteria and weighing factors that are

specific to your company’s culture and goals. Several factors to consider when

outsourcing are listed below in no particular order of importance. The ranking should

depend on your company’s specific situation and goals:

Commitment to Quality

Providers who have a commitment to draft quality

work products and have internal QA/QC systems

that ensure your compliance requirements are of

the utmost importance.

Price

Price is one of the primary reason you are

outsourcing this function. When comparing prices

between providers, make sure you do a true comparison of other factors in this list.

Otherwise you will pay for it in some other way in the end.

References/Reputation

It’s best to go with providers having outsourcing experience. Going from providing

project work to an outsourcing program is a big difference. How long has the

company been providing outsourcing services? How many clients do they currently

have? Have they lost any clients to poor performance? Can they provide references

and testimonials for their work? Are they reliable and do they warrant their work?

Flexible Contract Terms

Providers should be flexible on their terms and conditions to suite your specific

needs and goals.

Can they meet your payment terms?

Can they warrant compliance and back it up with their professional liability

insurance?


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What insurance levels do they maintain?

Are they sufficient to cover liabilities associated with non-compliance?

Scope of Resources and Services

Selection of a firm having the necessary resources and technical expertise is critical.

Outsourcing firms with a few employees may not be able provide the continuity

required in times of sickness, absenteeism,

or need. This situation may result in an

outcome no different than the availability of

a full time direct hire. Retaining a provider

offering comprehensive services and

resources will eliminate the need to

supplement your EHS program with other

providers that may not be knowledgeable in

your operations. One or two person outsourcing providers may not be sufficient to

provide the continuity of services required. Consider selecting a firm having sufficient

staff to provide back-up when necessary.

Cultural Match

Evaluate the provider on their work ethics, availability and how they will fit in with

your employees. Determine if there may be personality conflicts with the provider’s

personnel and those internal employees who will have to interface with them? Do

their company values align with yours?

Existing Relationship or Experience with the Provider in Previous Projects

Evaluate the experience you may have had with the provider in the past. Were they

on-time with their deliverables? What was their quality of work products? Did they

have to do tasks over and over again until it was right? Is this the type of company

you want to have a long-term relationship with?


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Knowledge and Experience with EHS Regulations

Ask the provider how they keep current with existing and upcoming EHS regulations

that will affect your industry and facility. Is it done casually by reading journals or

visiting internet sites or do they have an online resource that automatically updates

them on new or upcoming regulations?

Industry Specific Experience

Knowledge of a particular industry’s EHS

issues certainly gives a provider an

advantage. If an industry is specialized,

would the provider know how to address the

various EHS issues for that particular

operation? Providers having experience with

similar issues in other industries may still be

able to provide the service you need.

However, nothing beats having the specific industry experience. In some instances,

the outsourcing provider may hire a company’s existing in-house EHS personnel to

maintain knowledge of facility-specific EHS issues.

Other Specific Needs

You may have other needs of your provider that may not be evident from the start.

For instance, if your management requires an in-house person to monitor the status

of the provider’s performance, how will that be conducted? Providers having a web

based compliance tracking system in place will allow you to determine the status of

various compliance tasks and would be beneficial in monitoring the firm’s

responsiveness during the term of the agreement. Providers not already having this

capability may charge you extra for establishing a tracking system.

When an employer presents their needs to an EHS outsourcing provider, there is

always going to be information that the prospective provider will need that was not

specified in the original Request for Proposal (RFP). Whether or not a provider has


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the foresight and good judgment to be proactive in this area is a good indicator of

how comprehensive and responsive their services will be.

Potential EHS outsourcing providers should review all of the information from your

RFP and immediately start formulating questions in response to assure all needs are

addressed. This offers a few really important benefits:

The buyer can determine if the goals set forth in the RFP are realistic and

therefore achievable.

The buyer can evaluate whether a provider is truly qualified to perform the

services needed.

This allows both the buyer and provider to fine tune the agreement and settle on

fair prices for services.

If a potential provider isn't doing at least as much homework as you (and preferably

more) then it may be an indication to should keep shopping.

In essence, pay attention to the EHS outsourcing provider who will go the extra mile

to gain your trust and, at the same time, are interested in their own reputation by

only taking on clients and services they are suited for.


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What Are the Success Factors of an Outsourcing

Program?

Making outsourcing work primarily depends on communication with the provider and

their understanding of your needs.

According to the Outsourcing Institute, a

think tank organization that provides clients

with best practices, lists these ten factors as

being significant in having a successful

relationship with your provider and in

achieving expected results:

1. Understanding company goals and objectives

2. A strategic vision and plan

3. Selecting the right provider

4. Ongoing management of the relationships

5. A properly structured contract

6. Open communication with affected individual/groups

7. Senior executive support and involvement

8. Careful attention to personnel issues

9. Near term financial justification

10. Use of outside expertise

Source: Survey of Current and Potential Outsourcing End-Users, The Outsourcing Institute Membership, 1998


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What Are the Risks: Outsourcing Versus In-house

Personnel?

Similar to selecting the wrong individual for an in-house EHS position, the primary

risk in an outsourcing program is selecting the wrong provider. However, this risk

can be minimized by a thorough selection process as previously discussed,

obtaining references, and verifying that the

provider’s professional liability insurance can

cover errors and omissions by the provider.

As in anything else, risk is relative and needs

to be measured against other alternatives.

What recourse does a company have if their

internal EHS manager fails to comply with a

regulation and a fine is assessed? An EHS

outsourcing provider should indemnify the client for fines and penalties incurred due

to their negligence. If the EHS outsourcing firm does not contractually offer this,

then look for another.

Other risks (potential costs) associated with a non-core direct hire that can be

mitigated by outsourcing are as follows:

Labor issues

Workers compensation claims

Harassment claims

Wrongful termination or discrimination lawsuits

Costs associated with these risks may exceed those for actual labor, but are often

difficult to quantify. Nonetheless, they should be included in an overall assessment

of potential risks when considering the different options.


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Case Study

Compliance Management International’s (CMI’s) outsourcing or “Partnership

Program “is a tried and tested EHS outsourcing service offered since 1995 and has

serviced over 300 companies covering 500 facilities nationwide. The Program is

initiated when CMI personnel visit the proposed site(s) to assess, along with the

company-buyer, the applicable and appropriate environmental, health and safety

regulations that will impact the facility.

Upon completion of this assessment, CMI will issue a list of activities required for

facility EHS compliance and forms the basis for the “Strategic Plan.” This “Strategic

Plan” is essentially the scope of work that is proposed in the Partnership contract.

After review with the client, adjustments and modifications will be made to suite the

client’s budget and identify which EHS responsibilities will be undertaken by CMI.

The contract is proposed for an annual period pending renewal by the client. A

typical Partnership consists of equal monthly installments over the contractual

period. If terminated earlier than the annual contractual period, then only costs for

work conducted by CMI will be assessed.

CMI will assign an Account Manager to the client as a central point of contact. The

CMI account manager will have full responsibility to ensure complete satisfaction

and EHS compliance under the terms of the Partnership. Various other CMI

personnel may be assigned as part of the team, depending on the services under

the Partnership. However, the Account Manager will be the primary contact for all

communications and service implementation/maintenance.

Options of Outsourcing

CMI offers outsourcing or Partnership Services under several different scenarios

depending on the needs and requirements of the client as follows:


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The client retains CMI as their EHS outsourced provider to act as their

internal EHS manager. The scope can include environmental and health and

safety responsibilities on either a full time on-site or scheduled basis.

The client has an existing in-house manager responsible for EHS activities

and outsources certain functions and responsibilities to CMI.

CMI is retained by the client to manage an existing EHS group on behalf of

the client.

These options provide the clients with a range of Partnership alternatives that suits

their specific need. For instance, some clients may already have an EHS manager.

By utilizing an outsource EHS provider, the manager can focus on more strategic

EHS issues while the provider can handle more day-to-day activities.


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Benefits of CMI’s Partnership Program

General

Our Partnership team can be at more than one facility at a time.

You pay for no benefits, 401k, medical, disability or other insurance coverage

You won’t be without an EHS resource to call since one of our Partnership team

members will always be available to you - no sick or vacation days

You will benefit from our volume buying capabilities with waste vendors,

laboratories, and other subcontractors or equipment vendors

Your EHS compliance costs are fixed and invoiced on 12 equal monthly

payments

CMI will not leave your company for

a better job elsewhere, eliminating

the time and costs associated with

turnover.

You pay no recruitment fees or

experience the frustration, time and

expense of interviewing candidates

Reduce EHS Risks

Our professionals have broad experience in all EHS areas, not just expertise in

one or two, eliminating the need and cost of other providers or specialized

consultants.

CMI’s staff of professionals includes, in part, professional engineers (PE),

geologists (PG), certified safety professionals (CSP), certified industrial

hygienists (CIH), certified hazardous materials managers (CHMM), and

Associates in Risk Management (ARM).

CMI will take responsibility for EHS compliance and assume the liability in the

unlikely event of fines or penalties for non-compliance that is directly attributed to

us (to the extent of the price of the Partnership Agreement);


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We have been providing outsourcing services for over 15 years for over 150

companies and 500 facilities;

Our Business Continuity Plan assures our clients we will be there for them in the

event of a potential weather related or other unknown interruption;

We can provide a complete list of all of our clients as credible references.

Reduce Personnel Issues

CMI will not instigate a labor issue or file a workers compensation claim;

CMI will not increase your full-time employee head-count;

CMI will not file a wrongful termination or discrimination lawsuit;

Our professionals are screened and background checked eliminating the need

for potential human resource interventions.


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Conclusion

EHS Outsourcing is a rapidly growing trend, and for good reason: It just makes good

business sense. If developed and implemented properly, EHS outsourcing will save

your company time and costs immediately and reduce exposure to fines and

penalties, HR issues and other internal labor concerns. Most importantly, EHS

outsourcing provides companies the opportunity to concentrate on their core

competencies, without compromising their commitment to environmental, health and

safety concerns.

Many organizations are currently assessing the true value of EHS outsourcing

opportunities. Executives and managers alike often do not have the information to

assess that, in addition to the direct time and cost savings, there are numerous other

advantages that reduce the liability of the company.

For companies employing an internal EHS manager, they are often over burdened

and may only be an expert on a couple facets of EHS regulations. All too often an

EHS manager is a jack-of-all-trades and will need outside support for areas of EHS

that he is unfamiliar or inexperienced or simply does not have the time to address.

Chances are they lack the resources that are available through an outsourcing team

of EHS professionals. .

When a company ultimately decides to utilize EHS outsourcing, they usually lack the

information on how to get started. As a result, they may contact the “one-size-fits-

all” firms that do not have the infrastructure of experience to deliver cost effective

and efficient outsourcing programs. This is not always the most prudent approach,

and in most instances the buyer’s decision is based on the situation where they just

do not know where else to turn.

Selecting a qualified outsource provider is perhaps the most important decision in

the implementation process. When engaging the right provider, you'll be hiring a

team of professionals experienced in a variety of services and operations. Each


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member should have their own area of expertise and, as a group, must work

cohesively to accomplish your company's EHS goals and objectives. They also have

the capability to assist in establishing results-driven directives required for a

successful outsourcing program. Even though EHS outsourcing may not be suitable

for every company, it certainly makes sound business sense to assess its viability.


Compliance Management International

1350 Welsh Road

North Wales, PA 19454

215-699-4800

800-701-9369

www.CompliancePlace.com

sould you outsource your ehs compliance?

Environment