Do I Need a Contractor Verification System?

Jul 10, 2018

Globalization has led to an explosion in the number of contractors that both multinational and domestic companies are working with. There are strong economic drivers for businesses that operate in other countries to hire local service providers and workers, but there is also solid domestic demand for contracted suppliers, as firms seek to partner with third parties for specific projects or needs.

Many businesses have started to embrace the lean management model, choosing to call in a specialist or repair company as needed rather than have a full-time employee on the payroll, regardless of whether there is work for him or her to do.

Unfortunately, many organizations overlook the need for contractor verification systems until it’s too late.In sourcing these vendors, procurement and safety officers need to consider more than price and availability, they must also consider verification. Factors such as the financial stability, qualification and safety practices of a third-party service provider and the risks of relying solely on a single contractor should also be considered.

This applies to both risk mitigation in the service and vendor supply chain and when calculating the financial and reputational cost of choosing one firm over another. Contractor verification systems provide purchasing managers with the information they need to make informed buying decisions and provide information to other critical departments, necessary when managing risk.

Common Contractor Verification Data:

  • CSR/Sustainability
  • Quality Systems
  • Financial
  • Diversity
  • Legal
  • Business Continuity
  • Insurance
  • Health
  • Safety 

 

Managers are not only working to reduce costs in the service and materials supply chains, they must also be proactive and responsible for how their contractors comply with corporate social responsibility and safety standards.

From a corporate perspective, the actions of a subcontractor may seem to only affect that service provider; however, in the public’s view, the organization that hired the contractor is essentially guilty by association.

For example, if a subcontractor employee is injured on a mine site, the mine operator’s name will be associated with the accident and the company’s safety record will likely be damaged.

Because the procurement department is charged with finding vendors and third parties that can assist in a company’s operations and production, they must also weigh the risks that come with those business partnerships.

Safety departments, typically charged with ensuring the well-being and health of internal employees, can help to clearly delineate organizational safety standards as they apply to third parties.

Using a contractor verification system to screen contractors prior to award, the procurement team can use these qualification criteria to verify that suppliers and vendors are following these standards prior to hiring and throughout the terms of the contract.

“According to the International Labour Organisation (ILO), more than 2 million people die around the world due to work-related accidents or diseases, every year,” CSR Europe points out. “This hampers not only the economic viability of companies concerned, but it climbs up, impacting along the chain up to the core clients, their ethics and reputation.”

When no contractor verification systems exist

Organizations that operate without a contractor verification system but continue to outsource put their company at risk. The inherent risks of entrusting certain functions with subcontractors or working with an external supplier for business-critical materials and services become more apparent when looking at recent news.

Headlines regularly detail the failings of unverified contractor’s s to comply with government regulations, safety guidelines, branding standards, and corporate social responsibility practices.

These violations not only threaten employees’ physical safety. For the companies that hired the suppliers and service providers, the events can also cause massive fines, operational disruptions, and reputational damage.

For this reason alone every organization managing contractors would benefit from implementing contractor verification systems.

Building a corporate culture that prioritizes contractor qualification and safety internally and among external business vendors requires configurable contractor verification systems and a joint effort from the safety department and those who oversee the procurement function of the business.

These initiatives are being adopted by the world’s leading businesses including Disney and Caterpillar who have implemented contractor verification systems. Leading organizations understand the initial search and bid review phase may be one of the few times when a corporation has the full attention of the service providers it contracts with.

Procurement professionals have the influence at this point to choose contractors that will observe corporate standards and qualifications, when a well thought out contractor verification systems exist, making compliance a proactive process rather than a reactive one that responds to threats.

Learn more by downloading the BROWZ whitepaper Contractor Liability and Risk Management Solutions.