In today's litigious society, taking preventative measures toensure a workforce is safe, compliant with regulations and simplyusing good common sense is essential to efficient supply chainmanagement.

For example, imagine a scenario where a contractor is hired by agas company to remove natural gas lines. The contactor, who iswell-known and trusted by the gas company, hires a two-personsub-contracting company to assist with the project. However, one ofthe sub-contractors accidentally forgets to check three gas linesprior to cutting them. This easy oversight results in catastrophe.Two contractor employees are now suffering from severe burns and inneed of immediate medical attention.

But what if neither company has Workers' Compensation orEmployer Liability Insurance? Who is on the hook for thedamage?

Contractor lawsuits are frightening, and in this particularscenario, the lawsuit would go to the company who hired them. Thismeans the controlling employer of the project (in this case the gascompany) is now responsible for paying $3.42 million to settle bothcases. This type of financial loss can kill a business.

Unfortunately, these types of lawsuits are all too common and inindustries where between 50% to 75% of past employees arecontractors, the safety risks are exponentially magnified. Whenthat much of the employee workforce is outside immediate companysupervision, it's just not enough to assume safetycompliance.

Wrongfully, many companies do not consider the legalramifications of hiring sub-contractors without a verificationprocess in place. The example above is the exact type of disasterto make a company step back and assess the strengths and weaknessesof their supply chain management process.

How could this occurrence have been prevented? Without the rightcontractor prequalification ahead of time, it couldn't have.

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Steps to take

These cases occur far too regularly. In fact, suppliers andcontractors often fail to meet minimum contract terms andconditions, including safety criteria.

Proper evaluation is the answer to mitigating supply chain risk.Loss control in efficient contractor and supplier relationships ismost effective when companies do the following:

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  • Communicate. Set proper safety expectationsbefore the contract is awarded that clearly state the guidelines bywhich their work will be monitored. Hold regular contractor safetymeetings and stay up to date with the project and its progressionto ensure alignment with the guidelines in place.

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  • Evaluate. Use objective criteria, such as theInsurance Experience Modification Rate and Total RecordableIncident Rates to determine how the contractor's performance ismeasuring up to stated expectations. Conduct supply chain riskmanagement audits on subjective and objective criteria such aswritten policies and past performance to verify that writtenprotocols are being implemented. Rank the suppliers into low,medium and high-risk categories based on their trades. This enablesthe ability to assess the services performed and how the contractorhas addressed proof that a safety program is implemented for mediumand high-risk trades.

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  • Select. Once the criteria against whichcontractors will be evaluated has been established, be clear tocontractors that all elements of qualification will be weighted andthat price is not the only factor on which they will be judged.Select contractors as strategically as possible and reward topperformers with improved relationships and more business, if theycan demonstrate a dedicated ability to meet the supply chaincriteria.

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  • Monitor. Enforce company-wide standards bykeeping a real-time database of all contractors in a regularlyupdated format. The database should be shared across theorganization to ensure that all necessary users are able to accesscontractor information (particularly qualification criteria andwhether they currently meet requirements) any moment of the day.The database should be able to produce reports and controlinformation for data efficiency.

Having a viable contractor verification system makes all thedifference. Consider an alternative situation where a contractor isinjured by another contractor while calibrating scales. Unlike thefirst example, however, the company used a prequalification systembeforehand and both contractors are properly insured with thecorrect insurance endorsements in place.

This time, the lawsuit is between the contractors, as is thesettlement. Both contractors have no right of claim against thecompany because the prequalification system collected and verifiedthat both contractors had the required insurance coverage. Thecompany has zero liability and no responsibility to pay.

The payoff is worth the effort. The result of the contractorsmeeting regulatory and contractual requirements is reduced risk andcost savings. With instant information and readily-availablequalification data made possible by a real-time database, a companycan rest-assured that their contractors are verified, the workforceis safe and their company is adequately protected fromlawsuits.

Contractor verification is a win-win process for both thecompany and the employed contractors, as well as a key element ofeffective supply chain risk management.

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