The Importance of Managing Contractor Risk

The Importance of Managing Contractor Risk

In March of 2008, a beef processing facility in Arkansas was destroyed by a large fire and series of explosions.  The massive destruction also caused an ammonia gas leak that forced 180 people from their homes.  Luckily, in this case, no injuries were reported, but the catastrophic incident had a wide-ranging impact on both the company and the surrounding community.

The fire started after contractors were conducting welding operations in the facility.  The welders were finishing up their work when the fire started.  As the fire grew, it caused a series of explosions.  The estimated $100 million facility that employed approximately 800 people and produced more than 2 million pounds of beef per week was destroyed. 

Although not always as severe, situations like this where contractors cause damage and loss to a facility occur on a regular basis.  When contractors are hired to perform work at a facility, inherent risk is always present. 

Risk Introduced by Contractors

The nature of construction and maintenance work can create dangerous and hazardous conditions.  Depending on the scope of a project and the surrounding conditions, the types and seriousness of risk can vary.  Many hiring companies are not fully aware of the risks that are introduced by contractors, and therefore, fail by not taking appropriate preventive actions. 

Risk to Employees, Products, Assets, and Property

When project work begins at a facility, the risk to employees, products, assets, and property increases significantly.  It is the responsibility of the hiring company to identify and work to reduce, control, or eliminate this risk. 

Having a Program in Place to Effectively Manage Risk

Contractors may not always be prepared to actively limit their risk, and if no attention is given towards preventing common problems, issues are prone to arise that will have to be dealt with in a reactive manner.  The most effective method to proactively manage risk is to have a formal, dedicated contractor management program in place.

A formal, dedicated program begins with Contractor Prequalification.  Before contractors perform work at a facility, it is vital that they are subjected to a vetting process to ensure that they:

  • Meet the organization’s requirements and have a high standard for safety and health
  • Have sufficient insurance and financial stability
  • Have the experience and knowledge to perform the work and meet project schedules and budgets

In industrial incidents like the one described above, the impact on legal costs, liability costs, regulatory fines, safety and health hazards, property damage, hazards to the public, production loss, and public relations can be immeasurable.  Properly managing contractor risk is vital and will help mitigate the inherent risk. 

Appruv offers a comprehensive solution to managing your contractor risk.  Contact us to learn how we can help!

 

References

 

https://www.nbcnews.com/id/wbna23769511

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