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Treat ‘em like your own! – The
management of contracted services
By David Powley - DNV Certification
Your organisation may have most things under control but
are you sure that all is well with the companies you have appointed to
act on your behalf? Do you know if they present risks to your prosperity,
reputation and people?
offers advice not only from the view of an integrated certification audit
but also with respect to business risk.
Firstly a definition of contracted services is in order – the activities
performed by a contracted company on behalf of and often in the name of
the contracting company. They can be performed on or off-site. Contracted
services are many and can include haulage, maintenance, consultancy, construction
services, installation, training provision, facilities management, catering
and much, much more.
High profile tragedies, accidents and incidents have often revealed failures,
on the part of the organisation concerned, to manage its contracted situations.
Apart from actual criminal action these cases lead to reputation loss.
Furthermore, there are an almost infinite number of cases of organisations
letting down their customers not so much as a result of their own performance
but that of those contracted to act on their behalf. Many of these cases
have ended up in civil courts and those that do not can at least result
in business and reputation loss. One of the several common issues between
the regulatory and commercial worlds is that both regulators and customers
are unforgiving (but correct) in their assumption that the contracting
organisation has the majority, if not all, of the responsibility. Customers
certainly will not have patience with tales of woe about the contracted
service – they did not have the commercial transaction with them.
The difficulty facing contracting organisations is that although they
are responsible for the actions of the contracted organisation that they
appoint, it is because they do not have the capability (or possibly the
capacity) of the contracted organisation that causes them to make the
appointment in the first place. However, in the eyes of regulators and
customers the contracting organisation is merely contracting out the task
– but certainly not the responsibility. In order to fulfil a responsibility
it is necessary to gain as much control as possible.
So, how can control be achieved?
An organisation will always feel comfortable about the control over the
staff it has on its payroll. A manager within that organisation may ask
if it is possible to have that level of comfort with contracted services
and the staff employed therein. The answer is yes provided that you learn
why you have comfort with your own people. Why not therefore consider
the steps that are taken for the appointment and management of own employees
and maybe adopt them for contracted services appointment and management?
All organisations, consciously or not, employ methods of human
resource capability management (HRCM). When one looks at the life cycle
of capability assurance for a function in an organisation we have the
following simplification:
| Step 1 Definition |
| Understand and define the risks and needs together
with the desired capabilities, requirements, characteristics, behaviour
and accountability of the function. |
| Step 2 Decision |
| Communicate (in advertisements etc) the ‘definition’
in step 1 in a suitable form to those interested and appropriate.
Consider all appropriate external and internal candidates by a variety
of means including questionnaires, interviews, reference checking,
verifiable previous work, behaviour, domestic and external circumstances
etc. Decide on a candidate or candidates with ‘best fit’
credentials according to ‘Definition’ in Step 1. Above
all else, at this stage it is important to make an estimation of how
the candidate is likely to perform for your organisation in the role
concerned. |
| Step 3 Contract |
| Create and agree, with the preferred candidate, an
agreement regarding responsibilities, behaviour, performance, terms
and conditions, benefits etc, largely based on ‘Definition’
in Step 1. Cost considerations come into this step and step 2 on two
conflicting fronts - the cost in terms of expected salary and conditions
and their affordability; the cost suffered by the organisation as
a result of a ‘cheap appointment’ ultimately causing loss
and / or poor performance. This is important. |
| Step 4 Management |
| Once the employee is appointed in employment, the manager
uses methods to manage and continually evaluate performance of the
employee against criteria (largely based on steps 1 and 3) and apply
correction or reward as necessary. In the event of failure to deliver
according to ‘Definition’ and ‘Contract’ some
correction and even sanction may be applied which may also be according
to the that agreed in step 3. In this event an improvement plan may
be agreed upon, which on occasions may involve just as much contribution
from the company as the employee. In general, a manager will apply
a level of control on the employee as necessary, depending on the
level of comfort felt. |
Using the employee management analogy and with some extrapolation and
imagination the logic can be appreciated and exemplified with the aid
of a hypothetical case. The contracting of a haulage service may serve
to illustrate (see fig 1). The assumption here is the transportation of
a variety of hazardous and non-hazardous liquids to customer sites, with
vehicles and trailers carrying your company livery.
Fig 1 - Appointment and management of a bulk liquid haulage service
| Step 1 Definition |
1. Estimate all possible scenarios in which a haulier
can let you down. This may include late arrivals and deliveries, unacceptable
conduct and performance at customer sites, poor road performance causing
road traffic accidents, poor maintenance of tractor, trailer and barrel
and more. This process is akin to determining the significant risks
and aspects in the health, safety and environmental management system
standards as well as deciding on what is critical within a quality
management system.
2. Based on point 1, define the selection criteria. This could include
being regulated by an audit protocol for hazardous goods transport,
deployment of an adequate level of resource, registration to a quality
management standard, working to a maintenance management regime, good
performance at customer sites, on-time deliveries, driver capability
and traffic accidents etc. |
| Step 2 Decision |
1. Communicate (to all likely candidate haulier's)
the expected selection performance criteria developed from step 1.2
above.
2. Consider candidate haulier's within the selection criteria in step
1.2. This can be achieved by witness & observation, interview,
discussions with their current customers regarding satisfaction, consideration
of their legal performance by discussion with regulators, audit of
their management system, checking their maintenance management system,
checking their registration status regarding management system standards,
checking the gravity and number of non-conformities issued by their
management system certification bodies, asking for procedures they
would use to service your contract etc.
3. Make final decision on desired haulier. |
| Step 3 Contract |
1. Develop a contract and a mutual understanding of
expectations with the haulier based on as much as possible of the
criteria developed in step 1.2 above. This could include terms and
conditions, quantitative key performance indicators as well as provisions
for penalty, sanction or even a ‘get-out’ as well as extra
reward when performance is exceeded or continually met.
2. Ratify the contract when agreement reached. |
| Step 4 Management |
| On-going management and monitoring against selection
criteria and contract details in steps 1.2 and 3 respectively. This
is a matter of discussing with the haulage service, at defined periods,
the actual experience of working with that service. Alternatively
this could be managed on a continuous basis. Whichever approach is
taken it is important to have a method of recording performance issues
(e.g. late deliveries, accidents, incidents, exemplary performance
etc).Any necessary improvement could be formulated in a plan that
could be incorporated into a new contract, come the time of re-negotiation.
|
It is worthwhile considering some issues (with reference to fig. 1)
in the application of this model in order to show the close relationship
with employee capability assurance.
| • |
This process is only usefully applied in the cases of
critical services (i.e. critical to quality, environment, safety and
health or business risk generally). It would not be appropriate to
apply it to the delivery of pizzas – unless of course food hygiene
is of acute concern! This criticality consideration is also applied
to employee capability and reliability – some jobs are more
critical than others and therefore the effort should be commensurate.
In this case the contracting organisation sensibly decided that the
haulage of hazardous materials is critical. |
| • |
It is advisable to do a thorough job in the haulier selection in
steps 1 to 3 (i.e. up to and at contract establishment). After that,
it may be very costly to recover the situation in the event of unacceptably
poor performance. This is recognised in the case of recruitment of
personnel to critical roles because no organisation likes the trauma
and waste associated with unsound appointments. |
| • |
Cost is important in selection but a cheap appointment could be
giving you an unacceptably high and hidden cost for the future. Today’s
success for the accountant or procurement manager may be the future
burden for people responsible for logistics, production, quality,
environment or health & safety or the company as a whole. You
would not employ an individual to a critical role solely because that
individual comes cheap - unless you like living on the wild side!
|
| • |
ISO or OHSAS registration is a good criterion for haulier selection
but should it be the sole selector? It is if you think that it is
acceptable to employ someone on the basis of qualifications alone.
Obviously you will want more - you want to know how they will perform
for you. |
| • |
Questionnaire completion by the prospective haulier's may be carried
out at step 2.2. This is fine provided it is not the sole and complete
evaluation tool without verification. You do not rely totally on what
candidate employees say about themselves so why in the case of prospective
services? |
| • |
Constant ‘organisational turbulence’ in a haulage company
can be damaging when a no-surprises level of consistency in performance
is essential. This can be foreseen if step 2 is carried out properly.
This consideration is akin to an organisation gaining some security
in the knowledge that a stable life outside of work is supportive
for employees in critical roles. |
| • |
It could be said that this model is most suitable for the longer
term critical services and may be modified with less effort for the
one-off jobs. This could be true but a badly performed one-off job
can create a disaster – always think of the criticality. This
is analogous to temporary or short term employment in critical roles.
|
The foregoing is admittedly generalisation and simplification but it
is hoped that the logic in the approach can be appreciated. This logic
is under-pinned by the theme that organisations ordinarily take more care
with the appointment and management of their employees than is the case
for their critical contracted services. The approach described may be
open to choice or criticism but the need to manage contracted services
with more care than is the case cannot be disputed. The evidence basis
is not only in the plaintiff moans within customer complaints but more
seriously - in the news headlines.
| David Powley is a well recognised and highly experienced
integrated management systems Auditor and Trainer with DNV Certification.
He is the author of numerous articles on management systems for
quality, environment and health and safety. DNV Certification is
one of the world’s leading certification bodies/registrars
offering the latest in management systems certification services.
With more than 49,000 certificates issued worldwide, our name evokes
a strong commitment to safety, quality, and concern for the environment.
DNV recently launched Risk Based Certification™, a fresh approach
to auditing. For further information on Risk Based Certification
or any other service DNV offer please visit www.dnv.co.uk/certification
or call 020 7716 6543.
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