What's Wrong with In-House Prequalification Systems?
As your company grows, your in-house prequalification system can cause problems.
In a perfect world, in-house contractor prequalification systems could work. But in today's business environment, conditions are rarely perfect and change is a major part of day-to-day operations. Companies need to be agile and have the flexibility to make the changes that will allow them to move forward, while still maintaining the standards and unique attributes that made them successful in the first place (learn about The Case for Prequalifying Contractors and Suppliers).
So why does this mean that most in-house prequalification systems won't work?
Increasing Challenges with Compliance
Let's start with compliance issues, since that's way up there on the list of priorities.
According to the U.S. Department of Labor, national employment has almost doubled since 1971 and now includes over 130 million workers at more than 7.2 million worksites. Since the passage of the OSH Act, the rate of reported serious workplace injuries and illnesses has declined from 11 per 100 workers in 1972 to 3.6 per 100 workers in 2009. OSHA safety and health standards now include specific regulations for everything from trenching and machine guarding to asbestos, benzene, lead, and bloodborne pathogens. Compliant companies have prevented countless work-related injuries, illnesses, and deaths.
Falling behind when it comes to compliance exposes your workers to needless risk. But compliance regulations are always changing. Sometimes, it's because of new technology that can streamline and improve worker safety; other times, it's to institute safer business practices. But whatever the reason, it's hard to keep up with the changes. When your company grows, it can be even more challenging to stay up to date.
It's easy to outgrow the small, in-house system used to verify important information when the business first opened up. But it's important to adapt. Mistakes and omissions are costly, and in some cases they could even shut down your company.
Companies that don't centralize prequalification systems run a bigger risk of having information misdirected or lost.
For example, risk managers must decide which types of insurance coverage will be required and the minimum levels that are acceptable. Then, the safety department will want to see a track record of safe work, which is usually defined by EMR (Experience Modification Rate), RIR (Recordable Incident Rate) and DART (days away / restrictions or transfers) rates. They might also want to know if OSHA has cited the company and why. Meanwhile, the project manager has their own responsibilities, so they want to know what the contractor’s capabilities are and whether they are able to deliver on a specific project. Over in the finance department, they'll want to know whether the contractor will have the financial capability of delivering on what they promised. The legal department wants to be sure that the contractor has agreed to a general conditions agreement or a contract that indemnifies the company. Finally, the purchasing department is trying to coordinate all these demands so they can find someone who will meet them at an acceptable price.
Are you seeing the pattern here?
When the prequalification system is not centralized, all these departments have to somehow communicate with each other and meet their own goals. So the biggest challenge usually comes in the way the information is collected. As each department requests the information that is relevant to their concerns, there will need to be more meetings and more time spent trying to clarify things.
On top of that, larger companies may have different locations that operate almost autonomously, which makes compiling, sharing, and using the information more challenging. When you throw in employee turnover in each of these departments, it's not difficult to see how in-house systems could become disconnected and disorganized.
Without a well-defined and coordinated system in place, verifying compliance and corporate requirements can fail and that's a recipe for disaster. If you've got a system that relies on all the pieces falling in place at the right time, Murphy's Law will kick in sooner or later and the system that was supposed to make your life easier will suddenly become a mess that needs to be untangled.
A Better Way to Do Business
An in-house system usually works fine when you're just starting out and running a six-person operation. But as you can tell from the examples above, once your business grows and gets becomes more complex, it's important to upgrade to a centralized system.
The odds of something going wrong will be reduced greatly with a centralized system, especially if it automates a lot of the steps in the prequalification process. Think about how useful it would be if your prequalification software automatically reminded contractors to update their expiring documentation (for related reading, see The Truth About Certificates of Insurance). Compliance is complicated enough, so why not make it easier?
Centralized prequalification systems also allow you to store documents electronically for quick access. You don't want your risk manager to spend 60 days turning everything upside down looking for a signed master purchase agreement because it wasn't properly filed – a document that was a critical component of the company's defense in pending litigation. That's the kind of document you want to always be able to access, not one you just hope you'll be able to find when you need it.
The case for centralized prequalification systems is built on best practices for communication, documentation, and compliance. Using one will improve your company's productivity while reducing administrative costs.
Written by Pete Wiggins | Principal