Contractor companies have a lot to look forward to in the year ahead. In a contractor-management strategy survey that ISN recently conducted, 60% of the 34 organizations in the upstream oil and gas industry reported that they expect to see an increase in their outsourcing of work to third-party contractors over the next 12 to 18 months.

Although a trend toward increased outsourcing is great news for contractor companies, it is not without risk to them. An increased workload for contractors in capital-intensive industries might lead to greater risk exposure for contractors and their employees. Since ISN started in 2000, it has observed that the increase in outsourcing work to third-party contractors has been driven primarily by increased specialization of work and the desire of companies to streamline efficiencies and free company resources. Contractors accounted for 65% of total work hours in 2000, increasing to 77% in 2016, with contractors having a 30% higher total recordable incident rate than company employees in 2016.

Challenges

Even with progress, there continues to be challenges in finding qualified contractor companies and ensuring that work conditions remain safe—two top priorities, according to the upstream oil and gas decision-makers surveyed. Additionally, 100% of those who reported having mature contractor-management processes also reported having a documented strategic plan for their contractor-management goals. By comparison, only 50% of the responding organizations that described themselves in the survey as having less mature processes reported having a documented strategic plan for their contractor-management goals.

One of the primary concerns identified in the ISN survey is ensuring the competency and compliance of second- and third-tier subcontractors hired by prime contractors. A hiring organization’s contractor management process needs to ensure that subcontractors are included along with the prequalification of contractor companies.

Other risk factors identified by survey respondents included distracted driving and the presence of temporary workers. The U.S. Occupational Safety and Health Administration estimated that motor vehicle crashes cost employers $60 billion annually in medical care, legal expenses, property damage and lost productivity.

Critical advice

With the new year in full swing, it’s a good time for hiring organizations to review and look for ways to improve their current contractor-management processes. Hiring organizations should implement new initiatives aimed at engaging the workforce and driving continual improvement plus alignment with the organizational values and goals. As president and CEO of ISN, whenever anyone asks me where to begin, I like to share three pieces of advice:

1. Clearly define and, if necessary, reiterate expectations to reduce confusion on the job site;

2. Better integrate internal processes and systems (i.e., health and safety management, procurement, etc.) so you have an end-to-end risk management process for outsourced work; and

3. Implement the “Five Times Rule” by communicating your points at least five times and in five different directions within the organization.

Better measurement equals better management

During the past 17 years, we have often said, “You can’t manage what you can’t measure” when speaking of mitigating the risk of outsourcing work. Using objective data to measure contractor performance is critical to improving the management and overall performance and compliance of contractors. A lot has changed in the industry during the past 17 years, and organizations and contractors alike must stay ahead of the risks associated with the changes.

References available

Contact Ariana Benavidez at abenavidez@hartenergy.com for more information.

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