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What is Contractor Management?

Contractor management is a system of controls that ensures contracted work and contracted services supports the company goals, aligns with planned schedules, and adheres to safety objectives.

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Things to know about contractor management

Many industries rely on contracted services to get everything done. Contractors can provide additional work when needed. Contracted services also allow companies to hire individuals temporarily for a particular project that have much needed skills and expertise. So many organizations use contractors in a variety of ways. The challenge comes with managing contractors and their services.  

That is where contractor management comes in. Contractor management is the system that helps companies manage their contractors and contracted services. It addresses the selection, acquisition, use, and monitoring of contracted services. Contractor management does not address the procurement of goods or supplies.

Contracted work should be bound by a predefined contract and comply with the regulations of every country involved. To create this contract, there are five general steps.
Steps in contractor management process

Planning

The first step is to set the requirements and the goals in a contract. The contract should define the basics of all necessary interventions and monitoring of contractors on site. Before hiring a contractor, the employer should define the contract detailing the tasks and the framework. Here are some elements that may be included in the contract:

  • The location of the workplace
  • The aim of the contracted services
  • Contractor capacity information
  • The procedures and processes
  • The main responsibilities
  • The necessary equipment
  • Definitions of rates and costs
  • The skills and qualifications required
  • The work permits
  • Specification of service level agreements (SLAs)
  • Compliance with the Health and Safety requirements during the entire intervention
  • Providing the appropriate PPEs (personal protective equipment) if necessary
  • The delivery dates

In other words, all the requirements and expectations should be explicitly mentioned and clear in the contract. It serves as the basis for your prevention approach with contractors. Planning in advance can make contractor management simpler and more effective.

Sourcing and selection

The next step is to choose the right contractors for a project or the organization. Sourcing and selection requires balancing the skillsets desired with the budget for contractor work. Consider using an evaluation matrix to weigh all of the costs with the skills needed for the job. The goal is to choose the best contractor for the job.

Onboarding and compliance

Once a contractor is selected, it’s time for onboarding. Onboarding involves signing contracts and establishing responsibilities, chains of communication, and payment. It is also important in this stage to ensure that everything is compliant with the regulations of the company, the industry, and contracting work.

Performance monitoring

It is important to supervise and monitor the contractors’ work on-site to ensure that the contract’s requirements are met and that the projects are progressing appropriately. During this stage, it’s important to prioritize continuous communication between the company, the employees who are working with the contractor, and the contractor’s personnel.

Contract closure

At the end of the contract, the company can evaluate the work of the contractor and close the contract officially.
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Contractor management software is a digital tool that helps organizations manage and organize work that is outsourced to contract workers. Advanced software can manage a blended workforce that contains both employees and third-party contractors. Contractor management software is a key tool many organizations use to better manage contracted services in the modern world.

There are several key features to look for in contractor management software. These are some of the crucial features that should be included for optimal management:

  • Contractor database
    This database tracks what contractors have been used before and all the contract information associated with them. A central database is important for contractor management.
  • Analytics and reporting
    Contractor services will provide companies with a wealth of data and information, but it is only valuable if the company can gather insights from it. Analytics and reporting can visualize data to help organizations learn from experience and profit from contracting.
  • Communication and collaboration
    Having features that allow for communication and collaboration can be powerful to keeping lines of communication open during the process.
  • Document management
    A centralized spot for documents is important as it allows companies to keep track of documents and find past contracts easily.
  • Performance monitoring and KPIs
    Performance monitoring is an important part of the contract management process, and software with this feature can make the entire process easier.
  • Onboarding and compliance management
    Companies save valuable time when the software helps with the onboarding process and managing compliance.

There are several key benefits of contractor management that organizations can reap. Some of the benefits include:

  • Allows for cost savings
    Contractors can provide work and resources sometimes at a lower cost than doing it in-house.
  • Enhances productivity
    Contracted services can provide great work and enhance productivity. Management then enhances contractors’ productivity.
  • Mitigates risk
    There is a level of risk with hiring contractors, but contractor management can mitigate that risk.
  • Ensures that contractors are working in compliance with policies and procedures
    Compliance is crucial and contractor management helps companies ensure all compliance is met.
  • Improves quality control
    Monitoring progress and performance can help ensure the right level of quality.
  • Improves organizational efficiency
    Management (especially management with advanced software) can help improve efficiency, especially at an organizational level.
  • Helps build profitable relationships
    Contractor management can help the process go smoothly, which then helps companies build profitable relationships that they can rely on again in the future.

Here are some of the best practices for contract management.

Optimize the vendor network

One best practice is to optimize the vendor network. Analytics tools can help teams access critical data and insights to determine the best-performing vendors more easily. That enables their companies to optimize the directory of service providers. Essentially, utilizing data to determine which contractors perform best can help companies choose the best contractors in the future.

Implement automation

Automation is where most industries are headed. Automating work order dispatching through centralized web and mobile service automation platforms can lead to significant advantages over legacy methods. It increases service provider response times to an issue. It will also ultimately reduce critical work order time-to-resolution. Automation saves time and resources.

Implement cost controls

Organizations can implement cost controls by establishing limits for recurring or routine work, as well as for new prospective contractors. Top performing companies can also customize their data to show specific analyses of cost and performance for past contractors, which can enable them to easily identify the best service provider by each trade.

Ensure contractor compliance

Service automation tools can provide organizations with the ability to manage compliance using a single dashboard (that can be updated at later points) that presents the organization with a comprehensive view of where each vendor stands in terms of its compliance. With this ability to monitor, companies won’t be caught off guard.

Initiate data-driven performance reviews

Contractor management can provide companies with data. Companies can then use that data to initiate data-driven performance reviews. Organizations today can rely on quantitative dashboards, scorecards, and analytics as the basis of data-driven and recurring performance management to enforce accountability and maintain transparency.

Establish KPIs

Defining KPIs and tracking them with the right tool can help businesses take the required action to ensure the effectiveness of their contractor management system. The KPIs might include contract initiation, creation cycle times, and process compliance.

Create a contract repository

Normally, once contracts are signed, they are saved into a system of some kind, which usually comprises an enterprise tech stack. That can make contracts difficult to manage or interrogate for insights. It can also increase costs and run the risk of third-party breaches. So instead, companies that create a contract repository in the cloud create a database where contracts can be accessed anytime and anywhere at lower costs and risks.

Standardize the contract creation process

Contracts are usually created in silos by discrete business units without any insights into existing contractual relationships or risk factors. That could lead to complications later on. Instead, it can be helpful to create a standard process for contract creation. That might include a library of templates or standard clauses to include. Standardized contracts can also save organizations time when creating contracts.

Contractor management is something that will continue to evolve as practices and technology change. These are some of the trends that are beginning in contractor management that will most likely only continue to become increasingly more popular.

Prevalence of project-based employment

Project-based employment is a type of work arrangement in which an individual is hired to work on a specific project or set of projects for a specific period of time. They aren’t hired on a permanent basis. It is often helpful when there is a temporary increase in workload. This type of employment also offers flexibility for the organization because workforces only increase when needed, and it does not lose money overall by hiring permanent employees.

Increased focus on contract data and analytics

Data is powerful. It allows companies to gain insights into what is working and what is not. To be able to gain these insights, many companies are shifting to an increased focus on gathering contract data and analyzing it. This trend helps empower companies to learn more about how contractor management is working for them.

Emergence of AI

Artificial intelligence is becoming a part of nearly every industry, including contracting. AI can be incorporated into contractor management software to help automate certain processes. For example, AI can be used to automate the process of analyzing contractors’ past performance data, certifications, and compliance records.

More importance on the pre-qualification and pre-approval processes

In future years, there will most likely be an emphasis on pre-qualification or assessing a contractor’s experience, qualifications, and capabilities before awarding a contract. Pre-qualification and pre-approval can help organizations find contractors that will get projects done on time and within budget.

Collaborative contract management

Collaborative contract management (CCM) is the process of managing contracts with all the necessary stakeholders. With CCM, legal, procurement, finance, and other departments can all help create and manage contracts. Many companies are adopting this process of contract management.

Blockchain-based smart contracts

Blockchain can help with the creation of smart contracts. Smart contracts can be programmed to execute automatically when certain conditions are met. This reduces the need for human intervention and streamlines the contract management process—which is why it is becoming increasingly more popular within contract management.
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Managing your contractors on your own is more than a full-time job. To ensure that your contracted services are proceeding optimally and in line with your organization’s goals, you need powerful tools and supporting resources. ServiceNow, the leader in IT management, provides the answer: Field Service Management (FSM).

Offering a range of advanced capabilities and intelligent automation solutions, FSM makes it easy to manage even the complex pool of contractors. The built-in ‘Field Service Contractor Management’ tool empowers organizations to efficiently track and manage third-party work assignments, ensuring seamless collaboration between in-house teams and external contractors while optimizing the allocation of tasks and resources. Additionally, FSM consolidates vital information about contractor activities, providing real-time visibility into the work and allowing businesses to monitor and access performance.

Your contractors are an essential element of your success—don’t neglect them. Learn more about ServiceNow® Field Service Management to begin taking your contractor management to the next level.

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