A Work Health and Safety Guide to Contractor Relationship Management

Contractors now integral to the global economy

Nowadays, most companies, irrespective of size, employ third-party contractors to perform a number of essential business tasks. Estimates of the U.S. contractor labor force alone are anywhere between 10 and 20 million workersⁱ. And that number keeps growing; with forecasts showing that within the decade, the contractor labor force will potentially constitute half of the U.S. workforceⁱⁱ. 

The movement towards contractor labor isn’t just an American phenomenon either. The labor hire market in Australia is surging as well. Recently, the country experienced an over 30 percent increase in independent contractors. Contractors now number more than a million workers, or just over 11 percent of the total Australian workforceⁱⁱⁱ. 

Across the globe, businesses are increasingly relying onthird-party workers to maintain critical production facilities and assets. From the host-business’s perspective, the benefits of this contractor-led model couldn’t be clearer: lower internal labor costs, increased flexibility, and less need for direct management oversight. 

Too often though, companies think they can simply add contractors to their payrolls and easily achieve strategic business objectives. Nothing could be further from the truth. Developing a cooperative, productive, maximally profitable relationship with a contractor takes time and effort.

Work health and safety regulations exacerbate the legal and financial risk of getting the contractor relationship wrong

What’s more, an increasing number of countries are strengthening their work health and safety regulations. Within the last decade, Australia and New Zealand, for instance, have developed more stringent work health and safety policies, regulations which, among many things, now impose concrete civil and criminal liabilities (including the potential for high fines and jail time) on host and labor hire PCBUs as well as their senior officers. Here is a brief overview of these regulations, especially their new duty of care requirements, as they apply to third-party contract employees.

• Australia.
  Since late 2011, Australian jurisdictions have been gradually adopting the model Work Health and Safety (WHS) Act, endorsed by Australia’s Workplace Relations Ministers’ Council in 2009. The model Act attempts to harmonize work health and safety statutes across the country, by imposing an affirmative duty on corporations and their senior officers to proactively exercise due diligence to ensure that that they comply with work health and safety duties and obligations^iv. Senior officers of a corporation, in many jurisdictions, can now be held criminally liable (with a maximum prison sentence of five years) for failing to ensure that their corporations comply with those obligations^v. 
  
  Above all else, the Act aims to secure the health and safety of workers and workplaces^vi. Particularly relevant to host businesses who engage contractors is the fact the Act expands the definition of who constitutes a worker to include third-party contract workers. Those workers are consequently owed clearly defined health and safety duties by the person conducting a business or undertaking (PCBU). The host PCBU must ensure a contractor’s health and safety while at work in the business or undertaking. Furthermore, the host PCBU must consult, cooperate, and coordinate activities with the labor hire agency to meet that obligation (for further notes on the requirement to consult, cooperate, and coordinate, see the section below)^vii. 
• New Zealand.
  Based in large part on the Australian model Act, New Zealand’s Health and Safety at Work (HSW) Act of 2015 sets out principles, duties, and rights in relation to workplace health and safety^viii. In the New Zealand context, the HSW Act comes as part of a larger response to the failings of the country’s pre-existing work health and safety system^ix. In addition to the HSW Act itself, New Zealand also installed a new health and safety regulator, Work Safe New Zealand. 
  
  Like in Australia, the HSW Act expands the definition of who constitutes a worker to include third-party contract workers. Those workers are consequently owed clearly defined health and safety duties by the person conducting a business or undertaking (PCBU). And like in most Australian jurisdictions, civil and criminal liability (including prison time if found guilty) extends to senior officers of a PCBU, even if the PCBU itself has not been convicted or found guilty of an offence^x.

Understanding your duty of care responsibilities for labor hire workers

Both Australia’s and New Zealand’s work health and safety regulations broaden a host PCBU’s primary duty of care to cover non-traditional employer and employee relationships, specifically the duty of care for labor hire workers (or contractors). In order to manage that duty of care responsibility, PCBUs need to do the following before engaging labor hire workers and during their placement. 

The top challenges of contractor relationship management

Unfortunately, many companies simply don’t have the internal personnel and know-how to effectively manage their growing contractor workforce so as to maintain compliance with work health and safety regulations. Those companies risk losing time, money, productivity, as well as eroding their core safety culture, without mentioning falling out of regulatory compliance with the new statutes. What’s more, deciphering regulations won’t be the only challenges facing businesses who contract third-party labor either. Here are some of the common contractor relationship management challenges:

• Lack of a cohesive contract(or) management process.
  Many businesses make contracting decisions quickly and haphazardly, often driven by short-term requirements not long-term strategy. When actually defined, the contract management process is rarely standardized, and various business units often own different pieces of the process with little cross-functional collaboration. On the whole, this lack of alignment, routinization, and long-term planning leads to longer, less efficient contracting processes. Safety and productivity go by the wayside; risk and cost go up. 
  
  So what’s the culprit? First of all, companies rarely have the requisite business intelligence to develop coherent contracting strategies. Additionally, businesses rely too heavily on the weight of past practices. Individual business units don’t perform detailed evaluations of prior contractors. Instead, contracts are just closed after tasks are completed, and not with an eye towards critical project evaluation and continuously improving the contractor process itself. That beneficial analysis would yield helpful patterns in job type, cost overruns, and productivity lapses. 
  
  Also, the technology to support contractor selection, relationship management, and evaluation, when available, is rarely integrated across all relevant business functions. 
• Time pressure.
  Contract work is often deadline-oriented, meaning that contractors have a financial incentive to cut corners or engage in unsafe behavior.
• Poor training.
  While many jurisdictions mandate training as part of a worker’s induction, the quality of that training can vary widely. Poor training, minimal involvement in safety initiatives, and low supervision can all imperil contract employees, who may have barely acquired the necessary skills or safety knowledge to pursue the job at hand. 
• Failure to communicate.
  Contract workers often receive incomplete briefing documents, vague instructions, and unclear expectations from the host business. Not only is this communication failure unsafe for contractors, but it also introduces task creep and cost overruns for the host business. Additionally, companies don’t always have a specific course of action laid out in the case of contractor infractions, like they do with internal staff. Contractor cases are handled in an ad hoc fashion, which corrodes confidence in the business’s core safety culture. 
• Lax enforcement.
  Across industry, contractor safety performance tends to lag behind that of host organizations. That performance lag reflects poorly on host organizations for a number of reasons. Firstly, host companies risk seriously corroding their own internal safety culture when relaxing enforcement of their safety standards in dealing with contractor workers.
  
  Moreover, host PCBUs have primary duty of care responsibilities to their labor hires working on host sites (see above). That duty of care extends not only to parties over whom PCBUs have direct influence but also those parties who PCBUs engage to carry out work (through sub-contracting)xi. Certainly, host PCBUs share a duty of care with labor hire PCBUs; but host PCBUs put themselves at unnecessary legal risk when they relax safety standards (vis-à-vis) their contractor labor force. 

Best work health and safety practices throughout the contractor life cycle

Those challenges point to the very clear fact that getting the contractor relationship right is far from simple, especially for companies who work with lots of third-party contractors. With so many moving parts and people, plenty can go wrong if companies don’t adopt an ongoing process to help manage the contractors that work on their sites. 

That process begins at the contractor procurement stage when businesses engage contractors to perform work on their sites. Of course, work health and safety regulations clearly impose a legal obligation on host PCBUs to consult, cooperate, and coordinate activities with labor hire PCBUs before contractors begin their work. But the  obligation notwithstanding, integrating health and safety requirements into the contractor procurement process provides a valuable opportunity for sharing knowledge between the principal parties, which can lead to a higher level of safety and lower level of risk, if the consultation does the following:

• Provides relevant information
• Gives a reasonable opportunity for all parties to express their views, raise WHS issues, and contribute to the decision-making process
• Lays out different hazards and risks to health and safety, including
  – Management of asbestos and asbestos removal
  – Major hazard facilities
  – Hazardous manual tasks
  – Confined spaces
  – Falls
  – High risk work
  – Hazardous chemical, including lead

The contractor lifecycle doesn’t end with procurement either. Effective contractor lifecycle management requires proactive, methodical management of a contractor from pre-qualification to post-job evaluation. Undertaken successfully, it can lead to significant improvements in cost savings, efficiency, and compliance. Here are best practices in contractor life cycle management: 

1. Pre-qualification.
   During this stage, many companies, especially those that engage numerous contractors, rely on third-party prequalifying companies to handle the majority of the initial contractor vetting. In turn, those third-party vendors make vetting decisions largely based on factors like, contractor safety history and cost projections. 
   
   Whether undertaken by the host company or a vendor, initial vetting should go beyond quantifiable data. That vetting approach only provides a limited understanding of future need. Companies should try to involve more stakeholders to get a broader, cross-functional look at pricing, use, and process-related costs. Getting a clear picture of the engagement during pre-qualification can also help improve efficiencies and productivity down the road. 
   
   Host companies should also manage all contractor data in a dedicated, centralized database. There, it can be easily shared and updated, after the engagement begins in earnest.
2. Pre-job task and risk assessment.
   A contractor’s risk rating is the category of risk contracted work falls under. It’s essential to accurately calculate a contractor’s risk rating, which will put contractors in a predetermined risk category. 
   
   But it’s simply not enough to perform an initial risk assessment based on an overly broad scope of work. Host companies need to make subsequent assessments, which will account for a contractor’s detailed work procedure. And therefore, companies will need to use a dynamic risk matrix to allocate points based on project risk factors, such as severity, frequency, incident probability, cost, schedule, security, etc. Projects that receive higher risk ratings will get more safety attention, i.e. more frequent, hazardous job meetings, and walkthroughs. 
3. Contractor training and orientation.
   Most jurisdictions mandate that host PCBUs perform on-site safety inductions and skills training for labor hires before those workers are able to work on a site. However, those trainings aren’t always site specific.
4. Monitoring the job.
   Monitoring consists of job assessments undertaken during the contract term. Depending on a project’s risk rating, assessment can run the gamut from daily checklists, to weekly walkthroughs, to even monthly or yearly assessments. 
   
   Irrespective of that risk rating though, host companies should regularly receive safety observations and up-to-date incident logs from their contractor workforce. Companies should also undertake routine performance reviews and field verifications. Again, it’s important that all of these findings remain centralized in an easily accessible database. To that end, host businesses should consider using technology with contractor relationship management capabilities to track safety observations, report on contractor non compliance, communicate unsafe conditions, and measure time to closure. 
5. Post-job evaluation.
   Many companies don’t have rigorous standards for evaluating contractor work after the engagement has been completed. The result: subpar contractors often get rehired with little contractor requalification oversight. To avoid this, companies should perform post-job work assessments, with particular emphasis placed on safety compliance, customer service, and, of course, the quality of the finished project. Companies should also be upfront with contractors about these post-work evaluative measures during the procurement process. 

Managing civil risk of workplace hazards

As addressed in work health and safety regulations, PCBUs owe a primary duty of care to internal and contract employees operating on a host PCBUs site. Employers must take reasonable care to avoid risk, either by devising a method of operation for the performance of the task that eliminates the risk all together, or by providing adequate safeguards. 

Host PCBUs should operate under the assumption that their duty of care is not delegable to other parties. And in civil cases, courts have found employers liable due to determinations that employers might have instituted simple, cost-effective methods to prevent workplace accidents.

In determining what is reasonable practicable at the workplace, host PCBUs should ask themselves what a reasonable employer would place in the same circumstances or situation to reduce hazard and risk. Anything that falls below that standard leaves host PCBUs open to civil risk. What’s more, the actions of firm employees (including contractors) might also cause vicarious liability for host PCBUs if those actions contribute workplace hazards. Therefore, PCBUs must develop the following systematic approach:

• Identify hazards
• Assess the risks associated with those hazards
• Implement and maintain risk control measures
• Regularly review the appropriateness of risk control measures

Getting started with contractor relationship management 

• Invest more time in contractor prequalification when making procurement decisions; or work with a qualified third party. 
  – Perform more thorough vetting of contractors through clear performance indicators outlined ahead of time.
  – Be as detailed as possible about the scope of work in the contract. 
• Have a dedicated team or manager monitor contracted work from tender to post-job evaluation. In addition to ensuring work health and safety compliance, that team or manager should:
  – Address issues that arise during the contract process, either personally or by engaging a suitably qualified person within the business. 
  – Consistently solicit updates on lagging and leading indicators of contractor performance to identify areas for improvement.
• Clearly communicate corporate safety values to contracted workers during orientation and training.
• Go beyond baseline compliance, by requiring contract employees to pass stringent orientation tests before working on site.
• Maintain proper permitting and certification standards for contract employees in a centralized database.
• Perform frequent job assessments to ensure contract employees continue to meet work health and safety obligations.

Contractor management technology: Vendor considerations to ensure work health and safety compliance

Companies shouldn’t manage their contractor interactions alone and especially not with antiquated, manual processes. Fortunately, risk and work safety management software can help companies guarantee multi-stakeholder compliance, by managing certifications, qualifications, licenses, permits, site inductions, testing, and training competencies. 

For companies looking to procure technology to help drive efficiencies in contractor relationship management, make sure that the technology meets the requirements of the initial tender but is flexible enough to react to changes as they evolve. Look for a completely flexible data model and workflow builder. Above all else, the technology should be mobile friendly, easy to use, and provide comprehensive, functional and reporting capabilities. Companies should avoid solutions that require extra developer resources or vendor input.

As the number of contractors working in the global labor force continues to balloon, companies have a financial and legal imperative to get the contractor relationship right. Too often though, contractor management focuses almost entirely on risk management and cost abatement, not altogether unpredictable, as the driving factor behind most contractor outreach is lowering internal labor costs. 

As this guide has sought to show, the same end goals of increased profits, lower liability, and higher productivity can be achieved with a broader-based contractor relationship program. That program should look beyond individual projects in silo and towards improving the end-to-end contracting process, so that contracted work upholds all tenets of the host company’s core safety culture.

Citations

i     Lauren Weber, The Wall Street Journal: The Second-Class Office Workers. Available at https://www.wsj.com/articles/the-contractors-life-overlookedground-down-and-stuck 1505400087.

ii     NPR/Marist Poll Results January 2018:Picture of Work. Available at http://maristpoll.marist.edu/nprmarist-poll-results-january-2018-picture-of-work.

iii     Australian Bureau of Statistics: Characteristics of Employment, Australia, August 2017. Available at http://www.abs.gov.au/ausstats/abs@.nsf/mf/6333.0.

iv     Richard Johnstone, Policy and Practice in Health and Safety: Work health and safety and the criminal law in Australia. Available at

https://researchrepository.griffith.edu.au/bitstream/handle/10072/57309/90748_1.pdf;sequence=1.

v     Ibid.

vi     The main object of the Act is to provide for a balanced and nationally consistent framework to secure the health and safety of workers and workplaces. It does this by:

• protecting workers and other persons from harm by requiring duty holders to eliminate or minimize risk
• providing for fair and effective representation, consultation and cooperation
• encouraging unions and employer organizations to take a constructive role in promoting improvements in WHS practices
• promoting the provision of advice, information, education and training for WHS
• securing compliance with the Act through effective and appropriate compliance and enforcement measures
• ensuring appropriate scrutiny and review of actions taken by persons with powers or functions under the Act
• providing a framework for continuous improvement
• maintaining and strengthening national harmonization of WHS laws and facilitating a consistent national approach to WHS.

For more information, see https://www.safeworkaustralia.gov.au/law-and-regulation/model-whs-laws.

vii     On-the job contractors also have the following duties as workers:

• Take reasonable care of own health and safety
• Take reasonable care that their acts or omissions do not adversely affect the health and safety of others
• Conform to any reasonable instruction given to the PCBU to help comply with the WHS Act and/or with WHS regulations
• Cooperate with any reasonable policy or procedure of the PCBU relating to health and safety at the workplace.

viii     Health and Safety at Work Act 2015. Available at http://www.legislation.govt.nz/act/public/2015/0070/latest/DLM5976660.html.

ix     At the time, New Zealand’s working environment was twice as dangerous as Australia’s and four times more dangerous than the U.K.’s. Available at https://www.odt.co.nz/lifestyle/magazine/our-killer-work-environment.

x     Health and Safety at Work Act 2015. Available at http://www.legislation.govt.nz/act/public/2015/0070/latest/DLM5976660.html.

xi     Joy Inouye, Campbell Institute: Best Practices in Contractor Management. Available at http://www.thecampbellinstitute.org/wp-content/uploads/2017/05/Campbell-Institute-Best-Practices-in-Contractor-Management-WP.pdf