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Jamie: Hello and welcome! We would like to wish everyone a good morning, a good afternoon or a good evening depending on where you are in the world. My name is Jamie, and I’m one of the co-founders of Safeopedia.
Before we get started, I just want to run through a few housekeeping items. Everyone on the webinar is on mute for the duration of the presentation, but we really do want to hear from you. So, we’ll keep it interactive and ask that you type in your questions as we go, and we will do our best to answer as many of them as possible at the end.
Also, so you know, we are recording the webinar. We will send out a link to the recording and the PowerPoint deck via email once the webinar is finished.
Typically, one of the first questions that is asked is: ‘How do I get a hold of the presenter after the webinar?’ So, what we will do is put up a slide at the end that has Patrick’s contact information. That way if we don’t get to your question or the webinar ends and you have a question after that, you can follow up with Patrick directly.
So, today we’re presenting Best Practices in Contractor Prequalification. The webinar is hosted by Safeopedia.com and Presented by CQN Advantage. At Safeopedia, it’s our mission to establish safety as a value. It’s our goal to support those EHS professionals, the operational folks, and, really, any safety-minded individual through educational information. We would really like to highlight the great work being done by these dedicated professionals on a daily basis.
So, without further ado, I would like to present Patrick Robinson. He started in the trades. He started his career on the tools, migrated through a variety of contractor field safety roles, and moved to a series of EPC and owner safety management roles. He currently manages two technology companies – one in the Contractor Management space, and the other in the Compliance Measurement Technology space. So, it’s my pleasure to present Patrick Robinson.
Patrick: Thank you, Jamie, and welcome to the several hundred that we have online with us today. Welcome to you all. Representing all corners of the globe, in fact, are participants primarily based in the United States and Canada, but also from continental Europe, the UK, Australia, and the Middle East. So we’re well attended for this particular webinar.
Today’s agenda: first we’re going to talk about key success factors. We’re going to start with some real bedrock elements in terms of long-term success with contractor prequalification. We’ll talk a little bit as well about the reasons behind prequalifying. Why it is important for a purchasing organization to put in place a prequalification process, and what are some of the outcomes of those efforts. Then, we’ll take a bit of a dive into the detail in terms of actual best practices. We’re going to look at these things from a number of different perspectives. Obviously, we’ll chat about what purchasers are typically doing in this area, and we’re going to provide other reference points from the legal community, researchers, industry associations and other stakeholders as they all have some points of view on this activity. We’ll wrap up with a question and answer session as Jamie suggested, and we’ll try to answer as many questions as we can in the time allotted.
To set the stage for the content that follows, this topic, Contractor Prequalification, is a very broad topic. We could easily spend an hour talking about best practices in questionnaire design, for example, or likewise about approval processes. As a result, we’ll not be able to go into a vast amount of detail on any one of these elements, given our time today. With that said, however, we’ll provide links and references for much of today’s content, so that anyone who wishes to do further reading will have availability of the same reference materials used in this presentation.
I will inevitably use the word “prequal” in the following discussion, simply because it’s a much easier thing to say compared to contractor prequalification. So, bear with me on this little bit of jargon as we progress. Lastly, let me say that given the response to this particular webinar, we’ll be canvassing today’s attendees to see if there’s opportunity to present future webinars that deal more deeply with specific subject areas. We’re looking at some ideas that may involve, perhaps, a panel discussion, specific elements that we could talk about in this sort of format, or just an open-ended Q&A session depending upon the input that we receive from today’s attendees.
So, with that, let’s talk about the definition of prequalification to get us started. Prequalification, as you see here, is the preliminary stage in a bidding process where it is determined if a contractor has the requisite resources and experience to complete the job as required. So, we just thought we’d provide this as the basis to move forward.
We are going to talk a little bit about the foundation of success, if there is only one piece of knowledge gained from today’s session, let it be this one. Establishing a contractor management standard for your organization that is endorsed by your executive leadership team is a critical success factor in terms of contractor prequalification. Typically, this is a written document that covers the management of contractors from first contact to a close out, and review of the particular contracted work scope. In a practical sense, what I’m talking about here is some of the items that you see in the graphic on the right hand side. We’re talking specifically about roles and responsibilities, required actions, and also the practical tools and things such as forms, process flow charts, etc.. Whatever it is your organization typically uses from a documentary point of view to keep yourselves organized and accountable to a particular process, we highly recommend that this be the starting point for your efforts. Please note, as well, that prequalification, as we’re going to talk about it today, is a subset of the much broader set of activities that is contractor management.
With that as our starting point, let’s talk about why you should prequalify. First, there’s the legal concept of “buyer beware” where it follows that, as with any product or service that you would consider purchasing, it’s simply good business to know who you’re buying from. Whether it is a service or a commodity this is a good process. Further, various OHS laws; for example, require harmonization of safe work practices between employers on a work site particularly for high-risk activities. So, this activity of harmonization of work practices, where it’s practical to do so, is, in fact, a contractor management best practice that’s required by OSHA.
We will also touch very quickly on the views of experts and leading corporations in these areas with regards to why they recommend that a purchasing organization prequalify the contractors. Then there is the aspect of legal compliance, and protection from litigation. We will provide a couple of reference points there as well.
So, what do the leading experts say? We found a very good, a very representative paper that was done by the Campbell Institute. If you’re unfamiliar with the Campbell Institute, we certainly recommend a visit to their website. They’re a respected global thought leader for world-class knowledge on, essentially, keeping people safe, and they have a particular emphasis on sustainable business practices. The Institute recently published a paper that included a detailed survey of world-class organizations and a recent literature review on the topic of best practices and contractor management. To provide a reference point for where the data came from and the results came from, the survey participants were large and diverse organizations, typically multinational in nature. At the top of their list of the five key contractor management activities was, in fact, prequalification. So, more specifically, the Campbell Institute report identified eight best practices for contractor prequalification that major corporations commonly use. Notable among these were the importance of applying a risk rating, for example, to various services that a client may purchase. This activity helps determine the degree of prequalification work that may need to be done. Ideally, it would follow that lower risk contractors should mean fewer prequalification hoops to jump through, and vice versa for high-risk contractors.
Secondly, ensuring that contractors that direct the work of subcontractors effectively communicate and ensure compliance with client standards all the way down the contractor chain is also a highly rated contractor prequalification best practice. So, those are just a couple of the key elements from that particular report.
Why prequalify in terms of potential litigation? Lack of prequalification activity can contribute to charges or protection from charges of litigation and potentially conviction in the event of high loss or high potential workplace incidence. In a recent Canadian case that we cite here, the courts have listed two elements in particular: a lack of training verification and the use of substandard equipment on the project were key elements that ultimately led to a conviction of those in charge of the job site. Each of these elements is an area where more rigorous project-specific prequalification could have identified these deficiencies. This is an example there of where a lack of activity in the prequalification area can have fairly significant outcomes.
A second example where prequalification and what’s called job conditioning efforts were recognized by the court as playing a meaningful role in establishing that the prime contractor, in fact, had control of the workplace and ultimately contributed to acquittal of charges were a couple of aspects that we see here highlighted, the first one being completion of subcontractor OHS compliance agreements. Then a similar activity where sub trades had signed off on client OHS expectations. So, the court deemed these to be valuable in establishing expectations for the project and being able to prove that there was an adequate level of due diligence in communicating the Occupational Health and Safety compliance needs for that particular job. So, this is another example where prequalification activities can go a long way in protecting from litigation following an unfortunate event.
So, we’ve cited a few examples here just to get started, and we wanted to just get grounded out on what do we mean going forward by best practices. Well, there are certain things that corporations do in the day to day administration of their companies, and certain things that governments mandate us to do, that are by sheer volume of activity, become the best practices in a given industry sector or with a given employer. So, that’s one way to consider best practices. Then there’s a slightly different approach to best practices that are recommended by researchers and academics – papers that are written as best practices by industry associations, for example. There are also things that the legal community and other stakeholder groups recommend that purchasing organizations do in this area of contractor prequalification.
Throughout this, we will provide some real world usage metrics from ten years of activity administering a contractor prequalification database. Just to provide some reference points regarding how these various elements get administered in a real world fashion.
So, really, what is prequalification? What are the major components here? While prequalification can be a lean and effective process, fit-for-purpose, it can also be a long and drawn out and somewhat administratively burdensome activity as well. When it comes right down to it, prequalification has three basic steps. The first two steps are essentially getting information from the contractor regarding what the contractor does, what services they provide, and how they provide them. The other element is obviously a document intake, which is extremely common. Marrying those two initial data input items essentially, gaining information about the contractor to a vetting process or some sort of approval, so that the purchasing organization can then move into the purchasing cycle, do further assessment, and ultimately, hire a contractor. So, we will talk about each of these three components in some detail starting with questionnaires.
So, when you’re talking questionnaire design and questionnaire content, these are the most common things that are seen by organizations that have prequalification processes in place. This should go beyond the fundamentals of contractor identification, services that are provided and the locations that those services are provided in. Very typical is HSE performance metrics. It is just about a universal requirement in terms of questionnaire content. These are, in a practical sense, workers’ compensation or EMR data. It could be OSHA rates as reflected on an OSHA log. It could also be Bureau of Labor Statistics calculations, whether it is lost time injury frequencies or total recordable injury frequencies, or severity rates. These kinds of metrics are commonly requested. Likewise, financial capability is always looked at. What’s the financial bench strength of the organization? Do they have the organizational pieces to carry out the work? Regulatory history is frequently cited as well, where hiring companies like to understand if there has been any sort of regulatory history certainly on the OSHA experience side, perhaps on HR (human rights) security. All of these elements get varying degrees of detail covered off in questionnaires. Lastly, safe work practices and quality standards are also very typical of questionnaire content that we see.
Following are some observations from our perspective regarding questionnaires. There certainly is a trend towards more data being requested of contractors. This actually is frequently at odds with usage. While there is a very large amount of data being requested, we see that the vast majority of page views are typically done in the area of HSE statistics, workers’ compensation, experience modification rates are very frequently looked at, as well as contractor responses to the regulatory compliance questions. In fact, those three elements as themselves, typically account for more page views than all the other page views combined. So, a reference point for you there.
We are big supporters of the fit-for-purpose approach to questionnaire design. We think it’s a far more practical and business friendly approach to design questionnaires based on the contractor category or the contractor services, whether it is high-risk VS low risk or particular services that are provided, as opposed to a one-size-fits-all approach to questionnaire content. Obviously, if there’s built in redundancy in the questionnaires, that will also build in redundancy in the approval mechanism and some of the downstream activities. So, fit-for-purpose is the better way to go.
Last on this slide, we’ll mention that there are some contractor sensitivities that we typically see around various bits of financial data. We see this more commonly in private corporations. We would like to make a bit of a nuanced point here that some of the questions are fundamentally different, and they’re viewed as some being more practical in terms of being able to prequalify for work on some other questions. An example that we have here is there is a difference between a request for annual revenue of a contractor that you might be considering VS asking them for a list of similar projects that they have done, and including the contract value for those projects. So, one is a little more valuable in determining whether they can execute a given scope of work for you VS a much more general question regarding annual revenue. So, we’ll make that comment.
Following are some tips for contractors and some advice and some behaviors that we see from our end. We certainly recommend that your questionnaire and other registry information be completed as accurately as you can provide. More specifically, we see a phenomenon where contractors would sometimes indicate that they can provide services that they really do not provide in-house, and they do not clarify that these are services that they may themselves procure after, and that seems to be an area of concern from clients. Also, blank questions on questionnaires tend to drive more noise in the system in terms of subsequent follow up calls to get adequate information and get questionnaires properly filled out. So, we will leave you with those thoughts.
If there’s one major point we would make here to contractors, it would be this one, which is to know your client’s incident classification standards. It is critically important that you report your loss management experience, your first aids, your medical treatment cases and these kinds of things. In compliance with your client’s standard, whatever it may be, it is important that you realize that workers’ compensation rates and experience modification rates are not the same calculations as total recordable incident frequency or DART rates, etc.. So, be knowledgeable in this area and be sure that your questionnaire reflects accurate information.
Also, a couple of other reference points that probably go without saying, but we will mention here, that your WCB rates or EMR rates and your regulatory compliance responses typically get a high degree of scrutiny at the client end. So, it is important to manage those elements where it is possible to do so and ensure accuracy in your responses.
Moving on to documents, in terms of best practices for document management. Absolute minimum requirements from our point of view include: commercial general liability insurance verification of CGO, and where appropriate, automotive insurance is an absolute starting point, an absolute need to have. Likewise, verification of workers’ compensation is a baseline requirement.
For contractors that have the ability to get their HSC management system or their HSC programs subject to certification it is a good idea to do so. Whether it is ISO, OSAS, which is a common protocol used in Europe, whether it’s the core process that’s very common throughout most of Canada or the VPP program or similar audit programs that are available elsewhere around the world. We highly recommend any contracting organization obtain these certifications, as this kind of thing, this kind of criteria, in many cases, can be deemed as minimum approval criteria. If it is not minimum approval criteria, it is certainly perceived as something that is more valuable to your prospective client than not having it. So, these things are highly recommended.
Other contract and project specifics typically include bonding and bank references, business licensing, and that kind of thing. It is not uncommon to be requested to provide HSE policies, quality policies, and sometimes further content than that. Certainly, technical certifications are valued as well. So, your client is very much interested in knowing that if you’re being considered, for example, for pressure welding, that the organization is certified to provide pressure welding services and that, in fact, individual welders are certified to apply their skills as well. So, these are the fundamentals in terms of best practices.
Here are a couple of reference points again from our perspective. The use of a database is essential whether it is an internal access database or a third party registry. Using a database is simply the best tool to track data documents. So, if you’re interested in insuring that your data documents from your contractors remain current and that you’re not exposed to many to risk of not having, for example, insurance coverage. Then a database really is the best tool for the job.
A couple of other reference points we’ll provide. Our history has found typically 15% of the documents on first upload to us do not meet the basic criteria. So there are upload errors. There might be errors in the actual documents in terms of expiry dates or improper coverage amounts, for example. There are a number of criteria, but 15% of it, every document that comes our way does not meet basic criteria. Likewise, 13% of all data documents are writer expired, as they exist on the mass storage device within your offices typically, or on our database. They are either expired or they are within about 30 days of expiry. So, just some risk management elements to consider that there is some exposure and items to track.
So, let’s move now into contractor approval and talk about basic due diligence. So, these items that you see here, these three components, are the widest lot of due diligence that you can perform typically, although there is also the amount of effort and administrative investment. So, verifying insurance, whether it is commercial general liability or workers’ compensation, taking a look at the contractor’s EMR rating or workers’ compensation performance versus their industry as a rating group, and then obtaining the technical licenses and certifications that the contractor needs to execute the scope of work. These three are relatively simple things to provide a very wide swatch of basic due diligence. So, highly recommended in terms of fundamentals that just about any purchasing organization can implement.
A little more detail, a little more effort obviously, include some of the other best practices that we typically see. An assessment of financial and organizational capability and resources is very common and highly valued. Typically, in the area of people-related matters, does the contractor have enough people, and do those folks have sufficient skill sets to do the work in a significant area. Also, a demonstrable track record with similar scopes of work is a high value best practice in terms of assessing and approving your contractors. Typically, this will be seen in four real key business driver areas or key result areas. Certainly, budget is included. Does the contractor have a track record of coming in on budget and on schedule, and executing their work with a high degree of quality? Also, are they in compliance with the Health Safety and Environmental standards for the worksite or the client? So, these are key elements in this area.
The last thing I want to talk about here and would like to emphasize as well is the great value that is gained from a work scope specific risk management and risk mitigation plan. There are many things that can be covered in corporate documents that speak in a general sense about how a given contractor is going to manage a risk on a work site. It is that much better when they provide a project specific risk management plan that considers where they are going to be working, the conditions that they’re going to be working in, and how they will apply their corporate processes to the specific conditions that they will face once they arrive at the workplace.
The legal perspective is similar to some of the aspects that I have just reviewed. Typically, the legal community tends to focus on areas of pure risk and rate just in the area of health and safety and occupational health and safety legislation. So, these are additional points that fall outside of reviewing safety records and some of the elements that we’ve already talked about. Two noteworthy elements include certainly at a growing rate of importance, an assessment of the competency of supervisors. So, the skill sets and the training of supervisors continue to gain an importance, and we certainly recommend as a best practice in this area. Likewise, also gaining in importance is post work performance evaluation that you’re going to see as a common theme in a couple of the other examples coming forward.
All these are best practices, just to wrap up. The last major area of content that we will discuss today is that there is a number of industry associations that published industry best practices related to contractor prequalification. We’ve provided a couple of examples here.
The first example that we want to provide is from a research paper that was done in the area of infrastructure construction contracting in the United States. So, this was related primarily to highway construction. Basically, the key elements that we’ve pulled out of this particular paper were the importance of migrating from a strictly financial prequalification to what is called a performance-based prequalification process. That’s covered off nicely in this document, and, actually, it’s quite a good read. So, what we’re talking about here in terms of the definition is the marrying of financial prequalification to performance metrics, and, in this case, of looking at project specific experience of the contractor, looking at their key personnel, then their performance in the areas of quality health, safety and environmental aspects.
A couple of noteworthy findings in this particular area was that they looked at managerial and past performance criteria as being more meaningful to them than simply the financial and the bonding criteria. The financial and bonding, of course, are absolutely critical and typically perceived as baseline elements of a prequalification in this particular area of the economy. It is interesting to see through the research that was done how important managerial and past performance criteria eventually became. The other element is, as mentioned in the previous slide, post project performance evaluation was also deemed to be a very important element.
The second best practice that we will reference here is from the Construction Owners’ Association of Alberta. The point we will make here is the importance of doing the right things at the right time. Prequalification is not necessarily a one-time activity. You do it once and you look after all the requirements. What is outlined in this particular document is a two-step process that is quite a bit more business friendly in terms of leaning the process down to doing what you need to do at certain stages as you learn more about your contractor. So, specifically, they’re talking about the aspect of general screening, which is basic due diligence, and we covered that a couple of slides ago. Then comes project specific screening, which is far more fit-for-purpose and is typically linked to the request for proposal. So, you’re now considering the services that the contractor may be providing you in terms of the actual scope of work that’s been proposed. So, these are best practices that we certainly promote and support.
The last thing that we will talk about is taking a weighted element approval process forward where you’re looking at a variety of things in these examples of finance. For example, related experience, the bench strength of the organization, etc.. Providing a weighting for each category and assessing with a broader approach than really just a cost or merely health, safety, and environmental issues.
In terms of industry best practices, we wanted to make a couple of comments here regarding the reality versus the theory because what’s written in the best practices is often not what occurs when these practices are implemented. Published best practices tend to be more fit-for-purpose obviously, in the areas of data and document collection. This is typically in the function of them being quite specific to individual sectors of the economy or individual activities, whether it is commercial construction, industrial construction, or whatever the case may be.
Purchasers tend to emphasize health, safety and environmental aspects at prequalification, but will typically select contractors based on price and technical ability. This is not new information necessarily. In fact, this is supported by the Campbell Institute survey that we discussed earlier. That places HSE, about 10th on the list of the most important criteria at the contractor selection stage. Speaking to contractors primarily, it’s important to do a really good job at the prequalification stage, understanding what elements clients will be evaluating you on to get you through to the RFP stage, where of course cost and technical ability and then a proven ability to execute work safely and high quality become the higher rated elements.
So, with that, that brings us to the end of the presentation. We’d like to thank everybody for attending, and at this point, open it up for questions. Thank you.
Jamie: Thank you, Patrick. Okay, let’s open it up for questions. I’ve got a few here.