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Contractor Management: Internal or external?


Your company outsources work to ever increasing numbers of external contractors. Over time, you have developed your own system for managing contractor-related risks.

That said, there comes a time when you ask yourself the following question: Should we externalize the management of risks of this nature? At what point does external management become profitable for your company?

The question is entirely legitimate but even before ascertaining what you will need to invest in terms of resources to externalize contractor management, it is crucial to determine what internal contractor management - all aspects direct and indirect - presently costs your company.


Weighing all Elements of the Equation

To decide on the best method to employ, you will need to analyse two options in depth. First, however, you will wish to consider the following factors which impact your capacity to manage the process internally:

  • How many different contractors did you hire last year?
  • How many work sites does your company currently operate?
  • Do different work sites share the same contractors?
  • Are you able to access contractor-related information in real time?
  • Do company activities entail high levels of health, safety and environmental risks?
  • Does your company operate work sites in more than one jurisdiction? Are company operations therefore subject to varying regulatory frameworks of which you must be aware and with which you must comply to ensure effective risk management?

Accelerated outsourcing, increasing numbers of work sites, multiplication of stakeholders and geographical expansion of activities are signs that the externalization of contractor management could prove an interesting alternative for your company.


Managing Nonstop Change

Whenever you conduct business with a number of different external contractors, information about them rapidly takes on considerable proportions. Administrative tasks are extremely time consuming.

To paint an accurate picture of what is involved in properly managing contractors internally and externally, the basis for comparison must be the same. You must therefore consider all aspects of contractor management, even those tasks that your company tends to omit or overlook owing to a lack of time, knowledge or resources. Following are a series of items often overlooked but which require active monitoring and intervention on your behalf.

Insurance policies, licences and permits
You must monitor document expiry dates and require that documents be current to avoid non-compliance.

Regulatory requirements
Laws and regulations change constantly, and necessarily impact permits and training required of your contractors.

Safety, quality and environmental programs
These are the documents most requested of contractors. Hiring organizations must always have the latest versions on hand and invite contractors to amend their programs to account for lessons learned following an incident or accident.

Operating and emergency measures manuals
Whenever manuals are updated, you must provide contractors with the amended versions. To avoid having to expend time and energy constantly forwarding documents, some companies simply elect to dispense with document updates.

Work site access authorizations
To ensure work site safety, you must know who is authorized to access which work site at all times, in all circumstances. These authorizations are closely tied to contract inception and termination dates which require consistent monitoring.

Resource fluctuation
Contractors constantly change team makeup to compensate for employees who call in sick or others who fail to show up for work. In either case, substitute workers have to be hired. You must therefore be able to react quickly to ensure that all employees satisfy regulatory requirements before they set foot on company premises.

Read Also: Outsourcing: The case for workforce management software


Assigning the Right Resources to the Right Job Positions

The decision to assign certain internal resources to external resource management generally presupposes one of the two following scenarios:

  1. You assign management responsibilities to an underqualified generalist paid a moderate wage. This individual learns as he or she goes but makes numerous errors in the process. You do not hire anyone to replace this person which results in one or other of work overload or forfeiture of certain nonetheless essential tasks.
  2. You assign management responsibilities to an overqualified worker paid a high wage to ensure that all critical aspects of risk management are covered. Owing to underuse of this individual’s potential, he or she is likely to seek to leave the company voluntarily at some point.

One way or another, your company finds itself in a losing situation owing to deficient resource/job position balance.


Allowing for Implementation and Management Costs

When calculating the costs associated with the internal management of external contractors, it is essential to allow for all indirect costs relating to the implementation of an internal system.

These costs include as follows:

  • Cost of additional personnel to manage the program and supervise contractors
  • Cost of data storage
  • Costs incurred to manage files and records, including saving and archiving operations, as well as data recovery systems
  • Cost of mechanisms for accessing and sharing information across work sites, departments and resources having recourse to the same pool of contractors
  • Cost of training employees to ensure that they possess the necessary expertise to understand what the company demands of contractors and know what they need to control and monitor
  • Cost of instituting specific means and communications activities

By drawing up a comprehensive list of all that is involved and then assigning a cost figure to each item, you will quickly realize that internal oversight requires considerably more resources than you might instinctively have imagined at the outset.


In short, since the magnitude of contractor management tasks – as well as related resources and costs – are often underestimated, it may appear advantageous to hold fast to your internal management process.

However, when you take into account all that is involved in doing the job properly, externalization may suddenly begin to make sense. If, for example, your company employs 75 external contractors or more, you can expect a return on investment in as little as just 12 months. You can also expect enhanced performance by internal resources formerly assigned to contractor management.

You would therefore be well advised to take a serious look at external contractor management.


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