AM-12-06 Improving Contractor Risk Management

Description:

Petrochemical and refining industries use third party contractors to execute a wide range of activities like major turnarounds, capital project design and execution, and routine maintenance, to name a few. Using third party contractors offers benefits such as allowing companies to maintain a leaner internal work force by focusing on "routine" work while leveraging the capacity of contractors during peak demand periods. In addition, third party contractors provide access to technology and resource expertise and experience that may not be available in house. However, many of the activities that contractors are involved with represent high risk areas for the company. Poor performance in a high risk area can have catastrophic consequences including loss of life, harm to the environment, significant financial and reputational losses and perhaps even the ability of the organization to remain financially viable. When a company involves a contractor in performing high risk activities on its behalf, it is delegating the responsibility of performing those activities to the contractor; however, it still remains accountable for the outcome of that work. If the work results in an undesirable incident, the company will be held accountable financially, legally, criminally and socially. Despite the enormous ramifications, many organizations tend to have an arm's length approach and leave third parties alone to manage “their own” risks. As a result, companies need a systematic and deliberate process to assess the impact of contractor activities on their risk profile, assess and select suitable contractors, appropriately deploy them and manage their performance over the life of the contract. While the focus of this paper is on refining and petrochemical companies, there are other industries that face similar challenges in managing contractors engaged in high risk activities. Examples include aerospace, pharmaceuticals, nuclear, airlines and mining. This paper incorporates examples of leading practices for these industries in addition to the refining and petrochemical industries.