IS YOUR COMPANY AT RISK?

IS YOUR COMPANY AT RISK? CURT Local User’s Council Meeting Washington, DC June 17, 2002

Is your company at risk? • Do you hire contractors or use suppliers? • Do non-employees enter your facility? • Do they have enough insurance? Do they have workers compensation? • Are they safe and committed to safety? • Can they produce references? Are they good? • What is the likelihood your job will be done on time or on budget?

How much exposure do you have? • How many questions on the preceding page did you answer “yes” or “I don’t know”? • Every time you hire a contractor you expose your company to risk. The question is how much. • To understand how much exposure you have, you need to understand the predictability of your contractors performance. • You also need to understand what risks you can manage.

You can’t eliminate your exposure to risk… …but you can manage it.

Why manage risk? • Because not managing it means you don’t have control and that’s never a place you want to be in business.

How can you effectively manage risks when using contractors or suppliers and allow them onto your site? • Be proactive when it comes to risk management. • Put a comprehensive prequalification and re-qualification process in place for contractors and suppliers. • Know the people who are coming onto your site.

A prequalification program should include: • Review of safety performance • Verify proper levels of insurance • Verify workers compensation • Verify proper licensing and certification • Review references • Review quality programs • Review substance abuse programs • Review security and criminal background checking procedures

A comprehensive qualification program can help manage risk by: • Helping you paint a picture of stability level and predictability of your contractor and how likely he is to perform on time and on budget. • Virtually eliminating some areas of risk such as too little insurance or no workers compensation. • Reducing the likelihood of accidents or unsafe behavior on your property. • Reducing interruptions in your schedule which increases cost.

What’s important about safety programs? • The Experience Modification Rate (EMR) is a strong indicator of commitment to safety and is directly related to the cost of labor. • A good safety record is a strong indication of a motivated workforce which in turn can lead to lower costs and faster schedules. • Inconsistency in safety statistics can indicate unpredictability, a higher potential for injuries, and a less motivated workforce which can cost in both time and money.

What’s important about insurance? • Who has the deep pockets? Does it matter? Probably not. If the lawsuits come you will likely be on the list. • Make sure your contractors and suppliers are properly insured and that their insurance is in good standing the entire time you do business with them. Even large corporations can go bankrupt overnight and you could be left holding the bag (and the bills).

…and Bonding? • The contractor's ability to secure a bid bond from a reputable surety provides additional, independent confidence to the project owner since it reflects that the bonding company has made its own investigation and has concluded that the bidder is financially and technically qualified to undertake the proposed project. • Remember, insurance companies and bonding companies are in the business of risk management.

How about workers compensation and contractor licensing? • They are required by law in many if not all states and it is the responsibility of the hiring company to verify compliance. • If your contractor or supplier does not have workers compensation, or does not have enough, you could be responsible for paying any claims. • If your contractor does not have a valid license, your job could be shut down until a valid license can be produced.

It is important to look at the entire picture, periodically • No single item will eliminate your risk, but by assessing all of these aspects of the contractor you can minimize the risk and begin to manage it. • If your contractor or supplier is paying attention to all of these factors then they are likely managing their business well and you are more likely to get predictably good services or products. • Remember, a long term relationship with your supplier or contractor is important, but it is also subjective and only part of the picture.

Again, why manage risk? • Ask yourself these questions • What would a $5,000,000 settlement mean to my facility? • How will a delay in my project affect getting my product to market? • How will going over budget affect my project, the product and my facility? • How would the unsafe acts of a contractor affect my employees, the community, and my commitment to Responsible Care? • Do I really know the security background of those I’m allowing onto my site?

Ultimately it comes down to safety and dollars. Not managing risk and exposure can lead to accidents and/or cost you money.

An effective process needs balance • You must balance the potential risks and your exposure against the need to utilize contractors or buy from suppliers. • You could virtually eliminate your risks and exposure, but doing so would leave you with no contractors or suppliers to choose from. • Managing risk means finding acceptable levels of risk and knowing you are at those levels.

Tools and services like V-Purchasing.com can help • We can improve your ability to manage these types of risk and many times at less cost than you have today. • We leverage information and tools across companies, across industries, and across regions to provide you with what you need to focus on managing risk instead of managing paper. • Our comprehensive contractor/supplier database can give you a snapshot of the contractor’s qualifications.

IS YOUR COMPANY AT RISK?