Contractor Risk Management Considerations in Modern Procurement

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

Strategic Risk

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 Risk

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.

Operational Risk

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.

Financial Risk

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.

Brand Protection Considerations While Working With Contract Workforces

There are many interpretations of brand protection. While some companies focus on solely preventing hacking or counterfeiting products, we’re focusing on the brand protection risks that arise when your company is forced to use large numbers of contractors to get the job done.

Heavy monitoring and screening are necessary to ensure that you’re working with legitimate team members. Contractors that will hopefully, if properly screened, have a solid working history and provide you with great results. This situation is becoming more prevalent in the US since it’s expected that by 2020, 40% of the workforce will be “freelance.

Remember the words of business mogul Warren Buffet that it only takes one horrible event to crush a brand’s reputation that took 20-plus years to establish.

Vendor Tracking and Its Impact On Brand Protection

To ensure you’re working with reliable contractors, and can mitigate issues if and when they arise, it’s crucial that you take the time to track your vendors and their personnel consistently and accurately. It only takes one major incident to cast a negative shadow on your brand and could take years to build back your reputation.  This is even true for government-run events as well.  A prime example of poor vendor tracking was in the news recently when a phony sign language interpreter was on TV during a very sensitive Tampa police press conference recapping developments in a multiple murder case.  This damages the credibility of the Tampa police, was extremely disrespectful to the victims’ families, and was easily preventable with proper workforce management systems and tooling.

According to Security Magazine, the top three brand threats in 2017 are:

  1. Workplace Violence and Active Shooter
  2. Terrorism
  3. Theft and Investigations (Think Equifax Breach)

These are very real and ever-changing threats that will undoubtedly have a direct impact on your brand.

Unfortunately, active shooter situations and violence in the workplace show very little recordable trends. It also takes many different shapes and forms, ranging from threats to actual violence in which there’s loss of life. The lack of trends makes it extremely hard to manage and mitigate but we know that it’s a problem, with more than two million workers affected by workplace violence each year, according to OSHA.

Terrorism, as we all unfortunately know, is becoming more prevalent in modern society. There are many forms of terrorist activities, whether explosions, driving cars through crowds, or cyber attacks. Be sure to monitor your vendors, especially those sourced internationally, to ensure their team is well documented and has clean records.  You must also make sure that vendors are qualified to complete the security duties they are being hired for to mitigate this threat.

Finally, theft and investigations is definitely an issue that can affect businesses in the rail, event management, and utility industries. Those industries collecting and storing critical data are especially at risk. Think about the Equifax dilemma that affected millions of people and their personal data. That breach was very damaging to their brand. Think about the Target hacking, where millions of customers had their credit card information stolen. Hacked credit card scanners put the retail giant’s brand protection at risk.

In all of these scenarios, an instance that occurs within minutes or days can negatively impact a brand’s reputation for years to come.

Most Effective Methods for Mitigating Risks

Whatever industry you operate in, you’re likely dealing with vendors and suppliers. Many times you’re also working with contractors who are actively visiting your job site. When you’re managing multiple relationships and temporary team members, risks increase. Mitigate the chance of negative scenarios by being proactive and building strong relationships with vendors from day one. The stronger your relationship, the more trust you build with the provider and are more likely to catch problems before they occur.

You can also mitigate risks and increase brand protection by taking the following steps:

  1. Background checks are critical. Work with a partner to help streamline the screening process to help you monitor your vendors and suppliers before they begin working with you. Background checks are an essential step to checking the quality and trustworthiness of your vendor partners.
  2. Location tracking and virtual site check-in are growing in popularity because of its effectiveness in monitoring contractors. Many companies are moving to digital vendor tracking for their contractors and subcontractors. There are now programs in the works which allows you to establish a geofence perimeter to know when the individual entered and exited a work site to help with billing and invoicing. They can also notice that individuals entered but did not leave the location which is an indication of potential security or safety concern.
  3. Ongoing screening is required to ensure consistent brand protection. You cannot perform an initial background check and forget about regular screening throughout the vendor relationship. Factors can change and if you’re not continually screening your vendors and suppliers, there could be critical changes, such as legal trouble, that can have a direct impact on your brand.

We are here to be a resource, especially for protecting your brand, for anyone 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, do not hesitate to 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.