A Quick Guide to Contractor Risk & Contractor Risk Management

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Risk is always present in construction projects. By definition, construction risk feels unpredictable and damaging, but you can identify and manage them.

You may feel you can control risk in your organization and construction management team—but what happens when you’re working with independent contractors? Suddenly, the success of the construction project rests on the shoulders of those are less accountable to you.

Contractor risk is important to understand. It requires screening and protecting yourself from issues that might arise in your relationship with the general contractor and their work on the project. That leads to contractor risk management, a risk register and a risk management plan, which can help you manage contractor risk on your projects.

What Is Contractor Risk in Construction Management?

A general contractor (GC) usually oversees a construction site and manages the work of subcontractors. A GC also manages the vendors and trades associated with the construction project. They serve as a central communication point between all involved parties.

An independent contractor, on the other hand, is also any non-salaried employee that is hired for a job on a temporary basis. Therefore, they are not given benefits, and often are paid at a higher rate because of that.

While there are benefits to hiring a general contractor and subcontractors, they can also be a risky venture. Any risk management process should include sharing the risk between the contractor, project manager and construction project management office.

That means the general contractor must have his own risk mitigation process that works jointly with the construction project manager. They must conduct risk identification and analysis throughout the project and have a risk management plan in place.

What Is Contractor Risk Management

Contractor risk management is the process of identifying, assessing and controlling the risks associated with an organization’s contractors. It is used to manage the work of general contractors and subcontractors.

Risk is part of any construction project, but managing that risk becomes more difficult when that risk is shouldered by independent contractors, not under the full authority of the organization.

Contractor risk management defines the parameters of the relationship and explains who is responsible for what when it comes to setting up a risk management process. That includes identifying and mitigating risks that may become active issues in the construction project.

Obviously, this requires a lot of coordination between the project manager and general contractor that you can facilitate with construction project management software. ProjectManager is a cloud-based software that connects teams in real time, whether on the construction job site or in the office. Collect risks on our list view, assign owners and, when in the progress of mitigation, track status. Try ProjectManager today for free!

ProjectManager list view
Use ProjectManager’s multiple project views to manage risk how you want.—Learn More!

Why Is Contractor Risk Management Important?

A contractor’s risk management process is vital to the success of a project. For one, it provides safety guidelines for workers, which is important for those who work in the dangerous field of construction.

Using a contractor risk management system also streamlines your operations. You can apply the work you do on your present project as you plan future projects. It also gives your teams the tools they need to make the right decisions to avoid risk.

Having a contractor risk management plan in place will boost the overall confidence of the project team. It’s like working with a safety net, and helps them to balance risk factors. That saves time and resources, which can lead to an increase in profits.

5 Simple Steps for Better Contractor Relationships

There are always ways to improve your contractor risk management. Once you start setting up a risk management process, you’ll find that, when issues arise, you’re ready for them. But regardless of how prepared you are, there is always room for improvement when managing contractor risk.

  1. Construction Contractors Are Not Employees: You have set up a temporary partnership with your contractors. They are not employees, but you do want contractors to feel part of the project and that their participation is appreciated.
  2. Stay Consistent: One of the most important is to keep things consistent. Having different management processes with different contractors, consultants and freelancers is bad business. Payroll, onboarding and offboarding should be consistent across external and internal workers.
  3. Set Expectations: Contractors need to know what they are supposed to do. Not setting expectations is poor communication, and leads to contractors going off-track. Managers should have regular meetings with contractors and get status reports from them to make sure things are moving forward as planned.
  4. Create Chain of Command: You want your contractor to report on their status regularly. But you don’t want that process to be overly complex or confusing. This will frustrate your contractor, which leads to poor productivity. Be clear who the contractor should report to and when they need to report to them.
  5. Keep the Lines of Communication Open: Communication ties all these tips together. Lack of communication is a killer on any project and more so when you’re dealing with contractors. Make sure your communication plan is clear with contractors.

Contractor Risk Management Best Practices

The contractor life cycle goes: prequalification, pre-job task and risk assessment, contractor training and orientation, monitoring of job and post-job evaluation. Following this cycle is a great framework for your contractor risk management.

Third party companies can do prequalification, which look at contractors’ safety statistics. They will include metrics to grade the contractor on. A passing grade provides security that you’re working with a professional.

Of course, the job task and risk assessment phase is the meat of any contractor risk management.  It’s good to have an internal risk matrix when starting this phase. Insurance liability, type of work and equipment used and so forth will also factor in here.

Most organizations use on-site skill and safety orientation and training. This phase can also include special permits. In order to work, the contractors must complete this training, which adds to the overall safety and reduces risk on the job site.

Contractor risk management doesn’t end once the work begins. There must be inspections, which might include a daily checklist, monthly assessment or weekly walkthrough. You should also evaluate contractors after the job for organizations to learn what went right and what went wrong. This way they can improve their contractor risk management going forward.

Things to Avoid in Contractor Risk Management

Ironically, one of the worst things you can do when managing contractor risk is hiring too many contractors. Outsourcing can get you into trouble. Whose opinion on the work is the one you should listen to, for one?

The issue is you might favor one contractor over another. This is not going to sit well with the others. It also shows a lack of leadership on your part. Managers are decision-makers. Make a decision on how to manage the project and then carry forth with it.

When you have a path forward and have clearly communicated it to the contractors you’ve selected, everything will run more smoothly. Another thing to remember is the importance of reporting. That’s how you stay in touch with the work your contractors are doing.

You need to monitor and track their progress and performance to make sure they’re meeting the benchmarks you’ve set up for the project. Tracking more than one contractor can be more difficult, but that issue is resolved with the help of project management software.

How ProjectManager Helps Manage Contractor Risk

ProjectManager is cloud-based software that allows you to monitor and track contractor risk in real time. Our tool not only captures issues as they arise but allows managers to plan how to resolve those issues before they become problems that sideline the entire project.

Create Risk Management Plans on Gantt Charts

In order to mitigate contractor risk, you need to identify risk and have a plan in place to respond quickly and effectively. ProjectManager’s online Gantt charts can create risk mitigation plans that you can share with contractors. You can determine resources and budget, too. If the issue arises, you can set the plan in motion.

ProjectManager's Gantt chart project view

Track Progress on Dashboards

The Gantt will show the percentage complete, but for a high-level view of the progress and performance of your contractors use ProjectManager’s real-time dashboard. Unlike other tools, you don’t have to spend time configuring the dashboard, it’s all set up and ready to go. The live dashboard automatically captures status updates and calculates the data, which is then displayed on easy-to-read charts and graphs.

ProjectManager.com Dashboard view

Generate Reports With a Single Click

Managers need to report to the leadership team and stakeholders. They also need more than a high-level view of the project they’re managing. That’s where one-click reports come in handy. Get detailed reports on time, cost and much more to better monitor the project. You can filter every report to show just the information you or your stakeholders want to see. Then, you can share the reports in a variety of formats to help keep everyone in the loop.

ProjectManager's status report filter

There’s so much our software does beyond planning and tracking. Email and in-app notifications keep you updated on what’s happening in the project. The collaborative platform allows contractors and the rest of the project team to stay connected. There are even streamlined timesheets, which are secure and provide further data on how long it’s taking contractors to complete their tasks.

ProjectManager is award-winning software that plans, monitors and reports on contractor risk. Use real-time data for better contractor risk management and keep your project issue-free and on track. Try ProjectManager today for free!

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