Contractor qualification

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CONTRACTOR QUALIFICATION

INSIGHT

IT HAS become the downside the strategy consultants don’t tell you about. Although it is widely accepted that it makes good sense for businesses to concentrate on their core competencies, the inevitable corollary is that non-core activities will have to be outsourced to third parties. But what if those third-party contractors are negligent, unsafe,or incompetent?

BP can provide one answer. Back in 2010, contractor failings were implicated in the Gulf of Mexico oil well blowout that saw the Deepwater Horizon rig catch fire and sink, killing 11 crew and triggering a 206 million gallon

Safe and sound?It is dangerous to assume that on-site contractors have the requisite skills and qualifications, writes Malcolm Wheatley

oil spill that has so far cost the oil giant $54bn in fines and remediation costs.

Or ask retailers such as Walmart, Benetton, Matalan, and Primark, slammed by consumer activists after using garment factories housed in the unsafely built nine-storey Rana Plaza building outside Dhaka, Bangladesh, which collapsed in April 2013, killing more than 1,100 workers.

Tech titan Apple, meanwhile, is still smarting after a spate of high-profile suicides at its Foxconn manufacturing contractor in 2010 and sportswear company Nike still bears scars around 15 years after some of its Æ

THE ‘CONTRACTOR’ pass on a lanyard conveys a lot of authority. It means the wearer has

someone’s permission to be on your premises. It may even mean it’s easier to do a roll call in the unlikely event of having to evacuate because of an emergency (real or a drill).

But the question is: does that hard-hatted, badge-wearing contractor have the necessary skills? Do they have the requisite training, licences and insurance? Perhaps, but how would you know? Do those signs on the wall that say ‘Safety is our number one priority’ mean anything if you have hired contractors but don’t know who is doing what?

Fortunately, it isn’t necessary for procurement staff to personally check the credentials of everyone on site. There are better options. And with a typical industrial accident costing tens of thousands of dollars, those options could pay for themselves many times over.

Andrew SawersSpecial projects editor, Procurement Leaders

© A Procurement Leaders publication. In association with BROWZ. All rights reserved

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Published by: Sigaria LtdProspero House,241 Borough High Street,London, SE1 1GA, UK

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shoes were found to be produced by children working in third-world sweatshops.

In short, while a strategy of sticking to their core competencies may make excellent sense for many businesses, the very act of handing over non-core tasks to third parties potentially opens the door to a whole host of unintended consequences.

These include fines and penalties, reputational damage, lost production, law suits, devoting management resources to dealing with official investigations and audits, and so on.

A paper from the US non-profit organisation National Safety Council (NSC), The business case for investment in safety: a guide for executives, states the most disabling workplace injuries and illnesses cost US business around $1bn each week in direct workers’ compensation costs alone. It calculates that each prevented lost-time injury or illness saves $37,000 while each avoided occupational fatality saves almost $1.4m.

The NSC report also points to the fact that indirect costs – such as workplace disruption, downtime, loss of productivity in the wake of an incident, worker replacement, training, more expensive insurance premiums and legal fees – can be even greater than direct costs such as workers’ compensation, medical expenses and litigation.

But what to do? One obvious answer, pursued by many businesses, is to espouse high standards of safety performance. Merely promoting such standards, though, doesn’t of itself deliver them. A week before the Deepwater Horizon accident,

for instance, chief executive Tony Hayward had taken to the stage at BP’s annual general meeting.

“Safety is our number one priority,” he told the company’s shareholders, as he reported on the previous year’s progress.

“Our focus on safe and reliable operations is now strongly embedded in all our businesses.”

To clarify expectations further, enshrine them in auditable operating procedures – ways of working that codify best practice,

ADA’S PRAGMATIC APPROACH TO SUPPLIER RISK ASSESSMENT

“Each prevented lost-time injury or illness saves $37,000, while each avoided occupational fatality saves almost $1.4m”

“On any given day, we might have 30 or so contractors coming on site – and during our annual planned maintenance shutdown, that number rises to 150 or so,” says Tim Whatley, corporate health and safety director at ADA Carbon Solutions, an American manufacturer of activated carbon. “With so many contractors, a prequalification process provides a vital level of confidence that contractors align with our company’s core values around safety, environmental stewardship, cost, and project timeline.”

But by 2014, he says, the business realised that managing so many contractors with spreadsheets and manual systems posed obvious challenges in terms of workload and efficiencies.

“We would create a folder for the contractor, and have a checklist for items such as insurance certificates and safety certifications as they came in,”

Whatley explains. “But when you’re managing hundreds of contractors, this can become difficult to manage, and even simply maintaining the data over time was becoming a challenge. We realised that we needed a better way of doing things.”

Coincidentally a potential customer of ADA, managing hundreds of contractors, used BROWZ for this very purpose, and required the activated carbon manufacturer to use BROWZ to submit its own safety and related certifications for prequalification purposes. Whatley duly contacted BROWZ to arrange the telephone-based training that he felt he needed.

“I remember that this was on a Thursday, and we arranged the training call for the following Monday,” he explains. “But on the Friday afternoon, on an impulse, I thought I’d attempt it anyway, and found the process to be really quick and straightforward. I began to answer the questions, load the

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ensuring operations are safe, efficient and legally complaint. Again, however, BP highlights the difficulties in this.

“[BP] was producing a lot of standards, but many were not very good, and many were irrelevant,” Nancy Leveson, an industrial safety expert at the Massachusetts Institute of Technology told Fortune magazine.

Fortune writers Peter Elkind and David Whitford pointed out: “BP had strict guidelines barring

employees from carrying a cup of coffee without a lid – but no standard procedure for how to conduct a ‘negative-pressure’ test, a critical last step in avoiding a well blowout. If done properly, that test might have saved the Deepwater Horizon.”

Real qualificationsThis all serves to underscore the downsides and challenges of outsourcing operational tasks to third-party contractors –

especially when those tasks are performed on either a business’s own premises, or on premises over which the company has contractual responsibility. More so than might be realised, poor practice among such facilities management contractors opens up an organisation to risk.

Suppose a painting or electrical contractor inadvertently causes a fire, burning down all or part of a chemical plant? Or a contractor causes damage Æ

required documentation and, within a short period of time, I had completed it. Given that I’d also found the customer service help desk people to be really responsive, I was impressed enough to reach out to BROWZ’s sales people.”

Risk recognitionA meeting with BROWZ was set up, at which Whatley discovered that the BROWZ system worked differently to some other tools he had encountered. Critically, it pragmatically recognised that different contracting activities posed different risk levels, which would permit ADA to tailor its contractors’ prequalification requirements more precisely to the actual risk that they represented or incurred.

“BROWZ was the only provider that I’d come across that allowed for different tier levels of risk, with low-, medium-, and high-risk job types,” he explains. “This allows us to have different levels of assessment based on the type of work that a contractor is

performing at our facility. So for example, you’ll have a janitorial service looked at differently from someone operating a crane. This really helps our contractors and helps us to build a positive relationship with them.”

And – just as Whatley himself had found – contractors have had little difficulty with the new BROWZ-based prequalification process.

“We have actually had some of our contractors tell us that they have really found the BROWZ process to be so much more user-friendly and efficient for them,” he concludes. “And for me, in my role, the single biggest impact is just having the required information at my fingertips: it’s so easy to log on to the BROWZ website and look up what we need.”

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to a production line, bringing output to a halt? What if a contractor’s working practices result in one of an organisation’s own employees being injured or killed? Or, for that matter, one of the contractor’s employees?

Such suppositions are not fanciful, say those close to the issue. Far more than, say, contractors engaged to undertake major civil engineering projects or to operate major pieces of transport or municipal infrastructure, the very nature of engaging contractors in the corporate facilities management space tends to incur an element of virtually unavoidable risk.

“You need people who you will feel comfortable allowing into your business, satisfied that they will comply with all the relevant stipulations regarding operational procedures, safety procedures and appropriate working practices,” says Oscar Palacios, purchasing director for North America in the wet product line of the major appliances division of domestic appliance manufacturer Electrolux. “Yet, at the same time, contractors have a business to run. So it’s important to be very transparent about those procedures and safe working practices: you don’t want contractors turning up and saying, ‘This wasn’t part of what I assumed, or part of my planned scheme of work.’”

The size of contractors’ businesses also varies significantly, notes Tim Whatley, corporate health and safety director at ADA Carbon Solutions, an American manufacturer of activated carbon. This in turn calls for a sensitive and realistic approach to risk assessment if a

business wishes to engage with a diverse supplier base in a socially responsible manner.

“A guy laying tiles on the floor poses a different level of risk to a contracting company doing high-level steel erection work,” he explains. “It’s important to prequalify them in the same way, but reflect their size and risk differently. We have contractors ranging from a family-owned business collecting waste cardboard to large national companies. If we imposed the highest risk tier and

insurance requirements on all our contractors, we’d never get the small family-run businesses working for us.”

Moreover, says Joy Inouye, research associate at the NSC, the nature of the relationship between an outsourcing organisation and its contractors can have a bearing on its ability to consistently comply with safe and appropriate working practices.

“Contractors aren’t inherently unsafe, but they can be subject to commercial pressures – either financial or timescale-based –

CONTRACTOR QUALIFICATION: MORE THAN JUST A ‘DO ONCE’ AFFAIRWhy should businesses engage BROWZ for contractor qualification and management? Quite simply, it’s about achieving better long-term control over contractor compliance, says Shane Neve, the company’s vice-president for professional services. And that improved control comes in several forms, he explains.

“We talk to many businesses that don’t have an issue with contractor prequalification, but that are aware that once they’ve qualified a contractor, they rarely go back and revisit that qualification. And that’s a risk – one that companies see and perceive, but one that it’s difficult to justify continually devoting resources to.”

Better control also arises through improved management information on contractor compliance, he adds. BROWZ’s Software-as-a-Service solution isn’t just a transaction and

storage engine, but also a reporting tool.

“Look at how even those businesses that excel at contractor qualification manage the resulting information, and you’ll see that spreadsheets and filing cabinets are commonplace. But while spreadsheets and filing cabinets are acceptable as data repositories, they don’t have in-built reporting or assessment capabilities – whereas our software solution does, enabling businesses to slice-and-dice information however they wish.”

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which can in turn encourage a contractor’s employees to cut corners,” she observes. “Often, too, the nature of contracting employment is such that employees won’t report in sick for minor ailments, and so will continue to work while physically impaired, which can lead to injury. Finally, the nature of contracting may lead to a contractor’s employees being undertrained or underqualified for particular kinds of work: they may not have the full specialised certificate that might

be required, or such certification may not be up to date. And in each case, while the outsourcing organisation may be strict about holding its own employees to its standards, enforcement in the case of a contractor’s employees might be more relaxed.”

Staying up to dateClearly, many businesses are aware of these risks, and seek to protect themselves from them. Talk to senior executives

tasked with procuring facilities management and similar services from third-party contractors, and a familiar series of protective steps is quickly discernible.

Typically, for example, businesses will have in place some prequalification processes designed to quickly and economically screen out the contractors least likely to meet their safety and compliance standards.

When label manufacturer Avery Dennison seeks bids for specific contracting services, explains Joe Larocca, the company’s global category manager for capital equipment, it generally relies on a pool of contractors with which it has had satisfactory past experiences, and that are known to possess the financial and management strengths required in order to meet Avery’s broad requirements.

“That tends to eliminate the ‘mom and pop’ shops,” he

observes. “We then move on to lay out the specific scope of work that is involved, and specify, as part of the bid package, the quality and safety standards that must be met, the insurance requirements that must be met, and the warranties and indemnifications we require.”

Typically, too, he adds, while contractors will be required to adhere to Avery Dennison’s corporate health and safety standards, each manufacturing

site will also have in place its own local contractor-specific and activity-specific safety requirements, which will have been developed by the site’s own local environment, health and safety manager.

At industrial company Metso, meanwhile, a broadly similar process applies, explains Ann-Mari Mattila, sourcing category manager for indirect procurement. While the firm tends to use contractors with which it has satisfactory previous experiences over a number of years, and are known to understand and comply with Metso’s requirements, a careful process of onboarding new contractors aims to weed out the mavericks.

“Effectively, it’s a two-stage process,” she explains. “At a high level, the contractors commit to Metso health, safety and environmental requirements via corporate contracts and are obliged to demonstrate Æ

“We want to deal with contractors that meet the standards, not those that downloaded a tick-the-box template”

Third, adds Neve, BROWZ helps businesses with hundreds or thousands of contractors to achieve long-term contractor compliance at a cost that’s usually significantly lower than carrying out the activity in-house.

On its website, the firm hosts a tool that enables businesses to input their own particular circumstances and calculate the return on investment they could potentially enjoy by using BROWZ technology.

“Let’s be clear: cost is rarely the key driver for our clients – safety, and protection from reputational risk come higher up,” he says. “But it’s still part of the compliance equation, and is still something that companies are aware of. The BROWZ solution lowers the cost of achieving long-term contractor compliance, and frees up internal resources to focus on other things. It’s not about doing it better or more cheaply, it’s about doing it better and more cheaply.”

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satisfactory safety records and insurance levels. The procedure is backed by local safety training when contractors employees come on site.”

As Metso’s approach highlights, ensuring contractors follow safe and appropriate working practices comes at a price. Prequalification processes must be designed and managed, audits performed, contractors monitored, and insurance cover sought and assessed.

Moreover, all of this must be carried out on an ongoing basis over the long term, and not just when contractors are first appointed. Insurances expire and contractors’ staff and safety records change. Assessing a

contractor once, upon first appointment, provides only a snapshot at that point in time. The diligent business will ensure it is abreast of any changes.

It is not necessary to do this onboarding process for all new suppliers, however – especially the small ones. Onboarding adds cost and complexity – especially when it must be undertaken at scale, stresses Ville Kuusela, programme manager for indirect procurement at Metso. He says the company has a global contractor base that numbers in the thousands.

“Consequently, over the longer term, our focus is on consolidating our facilities management and services spend

over fewer and larger contractors, in order to make it easier to ensure that our health and safety requirements and standards are being met,” Kuusela says.

Squaring an awkward circleThe cost and management burden of such approaches are not their only drawback. The widespread reliance on requiring contractors to hold – often high – levels of insurance, for instance, operates as a zero-sum game at best.

As another NSC paper, Best practices in contractor management, states: insuring against risk does not of itself do anything to reduce that risk, unlike proactively working to improve contractor standards.

“Safety is just good business,” it argues. “Screening for high incident rates and avoiding awarding contracts to high-risk contractors not only reduces liability and insurance claims, but creates safer work sites and increases the potential profitability for all parties involved – owners, contractors, and subcontractors, alike.”

Moreover, in attempting to raise standards through screening out unsafe and unqualified contractors, businesses must also square an awkward circle: they are engaging contractors precisely because the task they wish to have carried out is not a core competency, yet they have to judge how safely and

professionally – or otherwise – these tasks are being performed.

Inevitably, says the NSC’s Inouye, the danger is of a flawed or dumbed-down assessment process, reliant upon a few key ‘one-size-fits-all’ measures, and a broad brush approach to risk assessment that lacks the granularity appropriate for particular specialisms or contracting businesses.

Pointing to examples of best practice from organisations as diverse as paper manufacturer Georgia-Pacific, industrial conglomerate Schneider Electric, space agency Nasa and steel firm US Steel, she stresses that it is important for organisations to assess not only contractors’

“Screening for high incident rates and avoiding high-risk contractors increases the potential profitability for all parties”

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safety records and experience, but also the risks inherent in the type of work being undertaken: a landscape gardener, for instance, will face a different set of risks from a contractor engaged to work at heights, or with dangerous machinery.

Understanding the risksBusinesses face a particularly thorny dilemma. Aware of the wisdom of outsourcing non-core competencies to third-party contractors, they are also uncomfortably aware of the dangers implicit in this. In seeking to mitigate against these dangers, they incur a costly administrative burden – one tinged with the knowledge that a

maverick contractor may still slip through the net.

What to do? A growing number of businesses are squaring the circle by turning to another third-party – specialists such as Salt Lake City-headquartered BROWZ, which combines a deep bench of skills in contractor management and evaluation with an innovative Software-as-a-Service (SaaS) solution designed to apply those skills to clients’ needs.

At its simplest, explains Shane Neve, vice-president for professional services at BROWZ, the company supports its clients’ contractor assurance requirements in three ways.

“First, we work with a client’s contractors to determine exactly

what it is that those contractors do for our client, where the risks are, and what assurances and further investigations might be required. You’d be surprised at just how many clients don’t have that level of granular visibility into their contracting supply chains. It’s a risk-driven process: a contractor refilling vending machines poses a very different risk from a contractor carrying out electrical maintenance, or working at heights,” he says.

“Second, our operational audit teams work with contractors to audit and assess their operations, gathering data on safety records, risk management processes, qualifications and certifications, and any applicable insurances. This information is then fed back to our clients, contractor by contractor, as either weighted scorecards or traffic lights – so clients can understand exactly what risks they are incurring, and from which contractors.

“Third, there’s a SaaS solution designed to serve as a hub, allowing BROWZ’s operational teams, our clients and their contractors to collaboratively maintain up-to-date records demonstrating compliance with contractual requirements, insurances, and agreed performance standards. What’s more, as our clients onboard new contractors, our software platform serves as the hub for them to begin demonstrating their own compliance and safety performances.”

It’s precisely this software-powered, tight, efficient, and low-cost linkage between BROWZ’s operational teams, its clients, and its clients’ contractors that makes Æ

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the firm’s offering attractive to businesses, asserts Aaron Rudd, BROWZ vice-president of product development.

“Managing contractor compliance at the point of first engagement is one thing; managing it over the long term is quite another; 50% of our offering is in the form of services, 50% in the form of our SaaS platform – and to manage contractors cost-effectively over the long term you need both,” Rudd says.

Jonathan Scheibe, life safety programs manager in the environmental, health, and safety function of speciality chemical manufacturer Ashland, agrees. A BROWZ client since 2011, the business has found BROWZ has enabled Ashland to ensure consistent standards of contractor management right across its North American operations, irrespective of the size of manufacturing plants in question.

“Large facilities have experienced environmental, health and safety teams, while smaller facilities might roll the activity into the job description of the operations of maintenance manager,” he says. “Using BROWZ, we know that contractor

management is being undertaken to the same standard, right across the business. For the first time, we’re achieving business-wide levels of consistency and thoroughness in contractor management – and incidentally, doing so at lower cost, although that wasn’t the key driver.”

“Plus, we know – positively and without doubt – how compliant our individual contractors are. Our compliance rate has gone up from 50%-55% to an average of 75% – and in some plants higher. That’s a demonstrable difference, and using BROWZ has helped us achieve it.” n

“Managing contractor compliance at the point of first engagement is one thing; managing it over the long term is another”

BROWZ DELIVERS assurance that your business is working with safe, qualified and socially responsible contractors, suppliers and vendors. BROWZ provides a comprehensive solution to prequalify and manage your supply chain. The BROWZ product suite will help you identify risk in your supply chain, prequalify and continually monitor the partners you hire, manage employee-level data on your suppliers, conduct safety auditing and source new suppliers.

CONTACT DETAILST: 1-888-604-4981W: www.BROWZ.com

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Organizations Outsource Contractor

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They have limitedadministrative resources.

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They lack the technology needed to proactively manage contractor

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business needs.

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