WSCA Report - It is time to get rid of payment deductions for quality


The BC silviculture sector has always worked with the threat and application of penalties for anything less than near perfect quality performance. Recently, after a few decades’ hiatus, the planting quality inspection guidelines were reviewed and updated by the MFLNRO and contractors. Subsequently there have been successful workshops on implementing them, run jointly by the WSCA and the Forest Practices Branch. More are planned. With all this good will and cooperation it is perhaps time to ask the big question, what does fining contractors for quality infractions have to do with planting, brushing or spacing better plantations?


Very little in fact. It’s doubtful any seedling has grown better after a contractor has been penalized. Inversely there is probably little evidence any plantations have performed more poorly because the silviculture quality inspection came in at a percentage lower than 100. I hate to think about all the angst and agonizing that has been spent tensely debating the disposition of a handful of seedlings in a sample plot, when in the long run the measurable performance difference is negligible; probably nonexistent.


This is not to say that planting or spacing trees properly is not important. Or that it is not worth the effort. It is, on both accounts. But I think the case can be made that penalties, in the end, have very little to do with accomplishing the goal of quality work.


Let’s be clear. Fines do have a place in the silviculture contract. There should be fines for negligence, like poor stock handling and wasted trees. Or crimes like theft and fraud. In these cases the penalties are intended as punishment and as deterrents for intentional breaches of conduct.


But to think that fines have a role in reducing lapses in quality, or will address more systemic problems such as contractor incompetence, or inexperience, is misguided. Negative incentives, which are one way of characterizing quality payment deductions, are just as contradictory as they sound. And as any social scientist will tell you, they aren’t that effective. They can be so weak, in fact, that some cynical operators will just consider them a cost of doing business, with the moral hazard that implies.


Quality fines also flunk the test of reasonableness. How reasonable is it to expect any contractor to perform to near perfection for this kind of work? It is doubtful in the real world that many of us could survive a random sampling of our performance that demanded near perfect quality, whatever that might look like. To be fined on top of that is gratuitous and unhelpful.


In the same vein how many other forestry activities suffer the benefit of deductions to payment based on such exacting scrutiny? Not only are quality fines unreasonable they are uncommon in the rest of our industry as well. We are planting and brushing trees. We’re not making artificial heart valves.


Having said this much, it is time to acknowledge that fines are not the problem. They are symptoms of a deeper one. And that problem has to do with the correct purpose and use of the planting inspection system. Quality inspections were not created solely as ways of penalizing contractors. Although, I will argue later some clients do misuse the inspection system to this purpose.


Instead the silviculture quality inspection system is best used as a tool to aid in the constructive communication between the client and the contractor as to just what is expected and how it is to be achieved. Because of its methodology it introduces some rigour into the conversation. To ensure things are done right the inspections have to be current. Their results have to be communicated to the contractor and their people on the ground as the work happens. This is the true purpose of the inspections when they are done sensibly: to correct mistakes and recognize good work. The quality percentages for success or failure are indicators that should only be used to support communication between the parties involved. Taking this constructive approach we should not be using the planting inspection system to link those percentages to payment, such as we have for decades.


In this context, for example, think of how absurd it is to have the so called ‘pay plots’ done after the fact: in some cases by a supposedly impartial ‘third party.’ What does this exercise accomplish? It is a misuse of the inspection process because it might as well be designed to fine the contractor. It takes place separate from the ongoing work. It occurs sometimes with different inspectors than the contractor has been dealing with. And obviously it has little to do directly with what really matters; getting the job done right when and where it was happening. It also wrongly assumes the rules of the inspection process are so perfect they can be applied in some kind of absolute terms independent of subjective interpretation or discretion; as if the inspectors were robots. This is nonsense. How loose is loose? How much air has to be in an air pocket? What is a proper site? This has to be described, adapted to the circumstances, agreed upon and executed during the work: not after it. Otherwise the ‘pay plots’ are just an exercise in finding fault.


And while I am at it, the unaccounted for tree provision is another invalid fine. Unaccounted for trees are just that: trees that are missing in the stats. There is no proof they represent wasted or stolen trees: which are the outcomes of criminal acts. Yet the contractor is more or less convicted and penalized accordingly, as if a crime had been committed. This conviction is done without any formal charge, or the necessary weight of evidence required for the illegal act implied.


Clients are human. And I would suggest that they are not immune to the psychological bias that payment deductions may introduce into how they deal with contractors. If things are going badly on a contract, is it beyond the pale to suggest that the frustrated client takes some consolation from the contractor at least paying some for the alleged lacking in performance? And if this is true, how far off is it to suggest that this bias actually encourages a tolerance for poor work—poor work that might otherwise not be put up with if the client had to pay full price? I also think it probably takes more time to manage for getting the job done right than to just manage for payment. If this is true, it introduces another skewing of the process. It is not too hard to imagine then the moral hazard effect this kind of behavior could have in a competitive market. It conspires to tolerate deficient performance rather than eliminate it, sending a perverse signal around quality and price. This is especially true in a low bid auction setting.


Contractors are human too. (And I think I have flogged that enough in other parts of this essay.) But being human, they want to stay in business and do a good job: at least the better ones do. The real incentive for them is to be asked back or to remain eligible to work again for their clients in the future. The fear of failure in that regard is sufficient incentive to ensure good work. Fines and penalties for quality problems are a distraction to the goal of quality work. In some cases they are an abuse of the client contractor relationship and represent a failure to understand how contract agreements in a responsible industry should actually work. If quality fines ever had any utility, the industry by now has outgrown it. Unfortunately the new revised rules still define the primary purpose of the inspection system is to determine quality and payment. There is still work to do to  move to a new level of responsibility and end payment fines linked to the quality inspection guidelines.