Creating Value in the Supply Chain

May 25, 2016

Managing compliance of contracting companies, as well as individual subcontractors, can be a time consuming and frustrating process. It requires the collection, verification, and tracking of numerous company details, insurance cover, registration, and ability to understand and fulfill their environmental health and safety obligations.

However, the process can have far reaching benefits that make prequalification essential for both the hiring company and their contractors. Some of these benefits include: managing expectations, reduction in conflicts, cost saving, time saving, mitigation of risk, and reputation management.

Most large companies won’t argue the need for prequalification. It allows for the setting of expectations in the form of well-documented contracts of services. These contracts of service set out the site rules and responsibilities, minimum qualifications and skills required for the project and most importantly, the payment of their subcontractors. The contract will provide a reference point in the unlikely event of disputes and prevent potential legal matters down the road.

A thorough prequalification selection of contractors will match the right contractor and skills to the task and reduce issues with quality, safety, and project delivery. This reduces overall direct and indirect costs to the project, including time saved from the reduction of unnecessary red tape and potential legal issues.

good prequalification program will require the hiring company to collect, verify, and track contractor company details, appropriate insurance cover such as workers compensation and public liability, equipment maintenance records, staff competency records, incident data and the contractors ability to understand and fulfil their environmental health and safety obligations.

While this process may seem onerous on the hiring company, the use of online contractor management and prequalification systems such as BROWZ will reduce the time and administrative burden on staff and organizations.

Large organizations are also extremely concerned with their reputations; brand name recognition and a good reputation can secure future work with little marketing capital.

Engaging the wrong contractors with potentially poor work practices, unsafe behavior, industrial disputes, and inappropriate insurance can create unnecessarily risk and leave the hiring company liable. This is a critical step in a well defined supply chain management program.

In some states, hiring companies can be liable for workers compensation premiums, pay-roll tax, and remuneration payable by the contractor, if it’s found the contractor has been negligent in covering or remunerating its employees.

This could be a significant unexpected cost to the project. As part of the prequalification process companies should review the financial stability of a contractor before awarding work. For example, using third-party credit information will give insight on the potential of a business going bankrupt, defaulting on its obligations, or having a serious payment delinquency.

Select your contractors carefully. The potential unwanted costs, injuries, legal action and negative reputation can have a significant impact on your organization and staff if you get it wrong.

You should only select your contractors once a comprehensive and diligent prequalification has been conducted to ensure all has been done to assess the quality of the contractors being engaged on your site. Be clear with your contractors about your safety expectations, legal matters, and site rules prior to awarding the contract.

Look at all the aspects involved. If you base your hiring decision on only one aspect, such as cost, you may run the risk of choosing the wrong contractor for the job, and this decision could end up costing more in the long run. Ensure your hiring managers are competent and well versed in the prequalification policy and procedures.

Assist your contractors to become preferred contractors by strengthening the relationship you already have with them and showing them that together you can comply with the prequalification requirements. After all, you have a vested interest in seeing them succeed just as much as you need them to comply.