Contractor Management, A Systematic Approach to Selecting the Right Contractors

Contractors are a unique resource whose organizational role can be anywhere on a continuum from long-term partner to a one-off pair of hands. I recently spoke about contractor relationships at The Australian Plant Shutdown and Turnaround Forum in Perth. During a plant shutdown, contractors swell the workforce taking on responsibilities, adding expense and the potential for risk while contributing diverse expertise. The concentrated nature of a shut, where work is performed within a tight budget and timeframe, provides a good framework for the issues around selecting, managing and fostering contractor relationships within any organization. While for my purposes for speaking at the Forum and for this blog post are relative to shuts—they are relevant to most contractor relationship experiences.

The call for business to increase efficiency over the past 10 years has been strong.  Many organizations have moved to a contractor model to free up company personnel for more visionary tasks and to integrate contractors into the workforce.  What is best practice and what are the key parameters for contractor selection? How can you predict your future of the relationship with your contractor? Success requires careful fostering and managing of contractor relationships with an eye on the bottom line.

Some people believe that cost is the most important parameter. But that can leave an organization unprepared to function properly. For example, when a contractor’s cleaning equipment broke down and held up the start of a shut or when we discovered leaking steam valves on start up because the gaskets had been pinched by an inexperienced fitter (a contractor). Or when the attitude of a contractor was so poor that no other trades would work with him.

No, cost is not the most important factor—but what is? I believe that quality and service are the most important.  I would much rather get a job done well in a reasonable time, knowing that we won’t hold up production or have to go back in later and make repairs on the run.

In a successful shut (and a lot of other activity), you want to reduce costs and improve reliability and productivity.  It is also critical to maintain safety, asset health and in-house skills and knowledge. Are you already doing this?  Are you happy with our contractors?  How can you tell? Are your contractors happy with you?

Kepner-Tregoe Contractor Management

Way back in 1986 when Ferris Bueller’s Day Off was showing in theaters, I was starting a career in maintenance and shutdowns. At that time most of the contractors we used had a long history with our company, both good and bad. When quality systems kicked off in the late 80’s and early 90’s, we did what most companies did and developed a preferred suppliers list. To be honest, we simply developed a list of all the contractors that we were already using. There was no formal review. There was no consideration given to our business objectives.

Fast forward to the 21st century. I have since learned more about decision-making and would like to share with you how this applies to selecting contractors.

Kepner-Tregoe Contractor Management

Almost 40% of contracts don’t deliver the financial benefits that were expected, costing businesses an average of 9% of their annual revenue, according to an International Association of Contract and Commercial Management (IACCM) survey of 35,000 members. Focusing on the wrong parameters can lead to poor outcomes.

Take a case study, by Christer Idhammar on cost and head count reduction. The accompanying graph shows a 2-year case study at a food processing organization with an aggressive cost reduction program that went wrong. A key measure used in maintenance benchmarking exercises was the number of maintenance crafts people and first-line managers such as planners and supervisors. Head count reduction was done through attrition and layoffs. The major mistakes made by this organization were:

1.      To cut costs by reducing only the number of employees and not considering reducing the need for maintenance or improving work processes.

2.      To focus on the number of employees, instead of hours of maintenance work, including overtime and contractor hours.

Short-term focus on only one factor—in this case cost/head count—can lead to poor results.

Selecting contractors is about balance. You need to balance cost, safety/risk, service and quality. Using a process for decision-making is the best way to achieve this.

The pioneering research done by the founders of Kepner-Tregoe began a movement to help understand the behaviors of the best problem solvers, decision makers and risk managers amongst us. They codified this into processes, which today we call KT Clear Thinking. Our rigorous approach to teaching these processes has trained over 3 million people globally and expanded our mission to include project management, IT/Customer Service and Leadership Development.

Using the codified, KT approach to Decision Analysis can help an organization balance the key factors in selecting contractors. Before you select a contractor, you need to consider your purpose and your objectives.  Are you looking to temporarily add to existing resources? Is this to fill a one-off or long-term need? Are you looking for a specialist or generalist?

Let’s look at an example: what is our purpose? We want to select a scaffold contractor for shutdown maintenance.

Before beginning a search or hiring, we develop objectives around the cost, safety, type of work, qualifications, values, etc. Along with this, we set measures to assess how well each alternative (each potential scaffold contractor) meets the objective. These are recorded as shown in the Decision Analysis graphic shown.

Kepner-Tregoe Contractor Management

But all objectives are not equally important. So, we classify each of these objectives into MUSTs and WANTs, determining the role objectives will play in the decision. This clarifies what is mandatory (MUSTS) and what is desired (WANTS). MUSTs decide who is in the race. WANTs to decide who wins.

Once the WANT objectives are identified, each is weighed according to its relative importance. The most important objective is given a weight of 10 and all others are then weighted in comparison with the first, from 10 (equally important) down to a possible 1 (only one-tenth as important).

Is the perfect scaffolding contractor out there? Ideal alternatives are rare. We must, therefore, evaluate the available contractors by measuring each against our objectives. It is the relative quality of that fit that concerns us. To evaluate alternatives, select the contractors that best meet the objectives. If there is only one alternative, we must decide whether it is good enough to accept; and weigh its relative worth compared with a perfect, but unobtainable, alternative. In the absence of any alternative, we must create something new; we can usually build an alternative from available components.

Once the best-balanced choice/s are selected, we assess risks and decide. For example, we may have found the perfect contractor, yet they may be spread thin with other work when we need them, presenting more risk than the next best alternative. Once risk is assessed, a decision can be made with some assurance that the right contractor has been chosen for the right job.

Kepner-Tregoe Contractor Management

Outside contractors can free up employees for other work or supplement their efforts, but they still need to be managed to make sure that they are aligned with company values while delivering results. In shuts this becomes important around things like safety, work hours, work ethics, etc. It can become a central point of friction with contractors after overcoming the initial basics of qualifications and availability.

Why take the time to choose contractors based on objectives, wants and musts? By following a process to select your contractors, considering what could go wrong, and managing their performance you can reduce cost and improve reliability, safety/risk and productivity.

Other Kepner-Tregoe blogs recommended for you:

Root Cause Analysis: The Difference Between A Shot In the Dark and Hitting the Bulls Eye

Six Steps to manage risk in you next project