We have specialized in contractor screening and worksite protection services for many years. This means we also have a deep appreciation of the supplier qualification and review process that procurement leaders drive every day. It truly is the first wave of contractor risk management for your organization and critically important to your success. In fact, according to D&B Organizations, companies often lose as much as 7% of spending due to fraud.
In this post, we’ll share a resource for each type of business risk that can occur when you’re working with a large team of contractors and subcontractors.
Contractor Risk Management – Areas to Monitor
If your organization is unprepared or selects an ineffective procurement strategy, you may be left with inappropriate results. These results often lead to a lack of value or other negative outcomes. According to the UN Procurement Practitioner’s Handbook you can prevent strategic risks from the start by collaborating on the desired outcomes and objectives with your vendors or contractors. If you’re not initially satisfied with the results, you can continue looking for a better provider that’s more aligned with your internally agreed upon strategy.
Compliance risks come in all shapes and sizes. Whether it’s managing OSHA standards or keeping your contractors up-to-speed on training, you’ll need to work with your entire organization to manage compliance within your work sites.
According to D&B, the best practices for mitigating contractor risks include:
- Establish standardized processes.
- Validate potential contractors with rigorous due-diligence before hire.
- Monitor contractor risk after hire.
- Adopt a portfolio view that assesses and manages the collective risk of contractors across the entire organization.
- Use automated reporting tools to strengthen management, transparency, and oversight.
While the D&B best practices are targeted for government contractor work, these can easily be applied to contractors hired for positions in rails and utilities. It’s critical to assess qualifications for contractors before, during, and after they are hired then monitor their training with real-time applications or reporting tools.
Another area of concern regarding compliance is contractor misclassification. Overall, your contractors must be completely autonomous, and not subject to the strict requirements expected of permanent employees. For more information on contractor misclassification and areas to monitor, check out this article.
People are a primary cause of operational risk, which is defined by Basel Committee on Banking Supervision as the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. This can result in fraud, theft, or human error and leave plenty of damage behind.
Operational risk is most critical in areas of rails and utilities that revolve around standard technology, such as a circuit board or any other hardware or software. When imperative data is exposed or able to be tampered with, contractors may have access, which leaves plenty of room for theft or human error.
Be sure to provide proper background screening and regular monitoring of all contractors on your work sites as a part of any complete contractor risk management strategy. For more information on operational risk, check out this presentation from the International Finance Corporation.
There are plenty of costs surrounding waste that will begin to add up if not monitored. For example, the costs of partial, incomplete, or inadequately executed contracts can be huge, especially in rail or utility maintenance. In fact, these costs could lead to an avoidable failure. To mitigate these costs, you can implement a Contractor Performance Assessment Reporting System (CPARS) to assess your contractor’s performance, both positive and negative, and get an up-to-date record on a given contract during a specified period of time. Read more about this service here.
In addition to monitoring waste, there is still a time and a place to perform credit checks on your vendors. Similar to the construction space, many vendors are heavily leveraged, these checks can help you ensure they’re financially stable and can help prevent a default or abandonment, which could fall back on your organization through heavy costs.
Finally, reputation matters. If a theft, attack, or data breach occurs within your organization, it can severely damage your brand and result in hefty financial implications. One way to prevent this type of risk is through proper contractor screening before and during the hiring process. Find out more about protecting your brand in our previous post on this topic.
We’re your resource for contractor risk management, especially for those working in the rails, utilities, and venue management industries. If you have any questions about ongoing screening and monitoring to manage your contractor and subcontractors, reach out to here our team by clicking here. Thank you for reading!
**This article is for informational purposes only. It is not intended to constitute legal advice.