Contractor management — Reducing the cost of reliability

Contractor management and controls provides cost containment and reduction.

By William D. Conner, III, CMRP, P.E.

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Why do you use contractors in your facility? The list can be long and winding with reasons ranging from cost savings to acquiring specialized skill sets. Regardless of the reason, managing contractors effectively will help control costs.

The intention here is not to create guidelines for when to contract for maintenance services. Rather, it discusses how to manage those contractors once the contracting decision has been made.

Organizational decisions

The graph (Figure 1) below is a snapshot of savings generated in the first month after imposing some realistic management controls on just three contractors at a North American chemical plant.

What can controlling your contractor costs do for you? The graph (Figure 1) below is a snapshot of savings generated in the first month after imposing some realistic management controls on just three contractors at a North American chemical plant. The combined savings created an 18.5% positive variance (return) worth $240,000.

What did it take to achieve these savings? Refer to Figure 2 for the decision flow. The first decision point was the role and staffing of the resident contractor — originally contracted simply to provide supplemental labor. The average daily number of personnel on site was set by contract, but the actual number was greater than the targeted amount. The numbers were reduced in increments until the overall work backlog reached the desired two to three man-weeks.

The first decision point was the role and staffing of the resident contractor – originally contracted simply to provide supplemental labor.

Second, all contractors were examined for the services they provided. It was determined there were too many contracting companies on site, all providing the same or similar services. Reducing the total number of companies lowered the administrative burden of managing multiple contractors.

Finally, a set of administrative controls was put into place, including control of the contractor sign-in logs, daily time sheets, progress reporting and work order management. These changes institutionalized the best practice of managing contractors through the company’s work management system.

Contractor management essentials

The example above was possible because of key decisions to implement several processes. In order to complete the first decision to reduce the number of contractors on site, each contracting company was evaluated on the following criteria:

  • Safety and Environmental Compliance records
  • Skills provided by the contractor
  • Business volume with the plant
  • Work quality

After the initial screening, the purchasing organization held discussions with the companies to determine if there were any contracting issues.

The resident contractor was notified there would be a reduction from current staffing to reach the minimum number of resident contractor personnel. After the reduction, there would be a quarterly pool ceiling evaluation based on the risk-based backlog. Because the reduction was gradual, the losses were generally absorbed by the non-resident contractors.

Because setting the administrative controls is harder, clear divisions of labor between the plant workforce, resident contractors and non-resident contractors are needed.

The following criteria should be considered for your contractor management controls.

  • Define who can authorize new contractors or increase contractor staffing
  • Set and mutually agree to roles and responsibilities for contractors and plant staff.
  • Identify and manage contractor interfaces with the plant work management system (for example, how much access to the computerized maintenance management system will be allowed).
  • Require all work done by the resident contractor to be performed under a work order.
  • Require all work done by the non-resident contractors to be done under a well-defined scope of work or work order.
  • Restrict the number of open or “blanket” contractor work orders — whether resident or non-resident contractors.
  • Institute a formal approval process so the contracting management function can determine bid requirements when unique skill sets are needed from outside the core workforce. Example terms include:
    • Time and materials
    • Cost plus fixed fee
    • Fixed price
    • Cost plus incentive fee
    • Performance-based partnership contract
  • Monitor contractor performance:
    • Contractor sign-in logs, daily time sheets and progress reporting.
    • Contractor representative attendance at the daily and/or weekly scheduling meetings.
    • Contractor quality assurance and work completion controls.
    • Periodic audits of contractor job plans.
    • Contractor cost management reviews for work greater than a set amount.

Roles and responsibilities of the contractor coordinator

In the previous section, criteria for managing and controlling the contractors were presented. Who makes sure that all of the carefully thought out practices, policies and procedures are followed? For plants with a minimum number of contracted services, contractor management can be an ancillary duty for the maintenance supervisor in the area. For a larger contractor presence, a contractor coordinator is a necessity.

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