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WHITE PAPER

A New Approach to Contractor


Management in the Energy Industry
A New Approach to Contractor Management in the Energy Industry

Organizations in the energy industry across the world Industry landscape


rely on contract labor to handle maintenance and repair
Contractors are often small businesses and do not main-
operations in such locations as refineries and power
tain the same level of automated record keeping that the
plants. They do this for several reasons, including better
customer, in this case the energy firm, would use. There-
risk management, a more flexible labor force, and ulti-
fore, it can be a significant cost burden for a contractor
mately the ability to reduce costs. But these benefits are
to upgrade its systems to customer specifications. The
not always realized, because the systems that contrac-
often-repeated response is that any such upgrade will
tors use to manage their workers are not as mature as
mean an increase in the upfront price. Contractors also
the systems the energy firms use to manage their full-
fear that the resulting information will be used to reduce
time employees. These outdated systems can hinder an
contract prices or require increases in response or
energy organization’s ability to comply with increasing
output. Those that see this as a competitive advantage
health, safety, and environmental regulation and
will participate; those that don’t will provide excuses as
control costs.
to why they can’t cooperate.

But the fact is that cost pressures and increasing


The common use of subcontractors also complicates the
regulation of health, safety, and environment are
effort as the number of contractors increases and the
forcing energy organizations to provide more insight and
relationship grows further from the customer.
control around:

•  Deploying the optimal amount of labor to reduce costs


Geographic and workplace challenges
•  Increasing workforce productivity in relation to uptime Refineries and other sites in the energy industry —
and production such as power plants — are large in size, and many are
located in remote areas. Many contractors also work in
•  Measuring the profitability of contractors different geographic locations on a daily basis. In addi-
tion, the metal used in the infrastructure of these sites
•  Determining the safety and health impact on the presents a communication challenge: It inhibits GPS
environment, based on contractor actions and wireless communications. The nature of the work
itself is also very different from traditional production
operations. There is a variety of planned and reactive
Contractor management challenges work. And the work can occur in almost any place
within the energy firm’s property.
There are many issues that prohibit energy organiza-
tions from understanding the true impact that contract
labor has on their operations. The next section of this These unique challenges make manual data collection at
paper will outline some of the most common challenges refineries and other energy sites very difficult and highlight
related to being a customer of a contracting firm. the need for an automated solution to track employees
around large territories and geographic locations.

Existing Manual Processes


Because the nature of the contractor’s work is dynamic
and decisions are made constantly by supervisors and
workers themselves, there are many manual processes in
place that make it difficult from technology and change
management processes to automate.
A New Approach to Contractor Management in the Energy Industry

A New Approach Deploying the “right set of contract labor” is a common


challenge facing organizations. It’s common for contrac-
The balance of this paper outlines thoughts and tors to send workers who may not have the right skills
suggestions of Kronos about how energy organizations for the job. Or to send overqualified workers who add
can successfully design and implement a contractor unnecessary costs to the project. When requirements
management system. are not met, output is reduced and there is an increased
security risk. Because of the large number of contract
The energy industry has its own set of unique challenges workers, a manual system makes it virtually impossible
and complexities. So, while it may be tempting to dupli- to track all this critical data. Automated workforce sched-
cate tracking and measurement systems for similar uling systems allow managers, supervisors, or planners
industries (such as those used on a production floor), to schedule the right set of contract employees based
the reality is that those systems took years to mature. on the expected workload (imported from systems like
The same goes for this industry. The following needs SAP). And it keeps track of employee variables including
must be met in order for a project to be successful: skills, certifications, and organization rules and poli-
cies. These systems also provide real-time visibility into
•  Clear direction and objectives from management as to over- or understaffing — allowing managers to quickly
what defines success find replacements or augment the workforce to increase
productivity.
•  Tangible benefits for the energy firm as well as the
contracting organization
Labor productivity
•  A clear road map of implementation with early wins to
Typically, when a contract employee enters the customer’s
demonstrate value
premises, he/she checks in with the reporting authority
and then goes to the person in charge to get the permit
•  Objectives and financial return
that states the work that this person needs to do. Once
the job is done, the permit is handed over to the super-
 he system should fulfill the same objectives as
T visor and the contract employee is finished. But how
discussed earlier, including the ability to: is overall workforce performance measured? Manual
systems make it virtually impossible to measure labor
•  Deploy the optimal amount of labor to reduce costs performance.

•  Increase workforce productivity in relation to uptime A contractor management system should have tools that
and production allow you to analyze overall productivity so that you can
be sure to get the most utilization, performance, and
•  Measure the profitability of contractors quality from your contract labor force. Data should be
compared against industry-relevant key performance
•  Determine the safety and health impact on the indicators in real time. This allows you to uncover labor
environment, based on contractor actions trends to improve overall performance and align your
contract labor and equipment resources for maximum
effectiveness.
Optimal solution
What does an optimal contractor management solution
look like? First, the system should be able to determine
exactly how many contractors are needed across shifts
and days of a week and schedule the right set of contract
labor accordingly. This is critical to managing labor costs
and workforce productivity.
A New Approach to Contractor Management in the Energy Industry

Utilization •  Zero callbacks for repair of completed job

Improved labor utilization is one of the largest and


•  No malfunctions of completed project
fastest areas where your return on investment can
be seen. Why? Because your labor is already present
and being paid. The key is to increase the number of •  Supervisor satisfaction
productive hours during the day. Lost hours typically
occur from a combination of factors, including delays The second step is to determine the metrics that should
due to lack of materials, equipment, or instructions, or a be collected. Some considerations are:
mismatch of work and resources because of low visibility
from a supervisor level. There is also increasing abuse •  Can they be collected at the completion of work?
and fraud when employees realize where the controls in
the system are and start working around them to ease •  Will inspection be required and quality entered by an
their burden. independent party?

•  Can the metrics provide information to improve quality


Performance after the fact?

With different contractors performing similar jobs in


•  How difficult are they to collect; are they objective or
different locations, an opportunity arises to measure
subjective measurements?
performance. By collecting readily available information
and delivering comparative analysis against standards,
One example of a quality metric that is in common use
higher-performing contractors can be rewarded with
by equipment manufacturers in the energy industry is
more work and low-performing contractors can be iden-
rework hours. These are the hours tied back to a specific
tified and coached toward better performance.
operation once quality control or the next operation
identifies an issue. In this way, frequency duration and
Depending on the contract terms, cost performance
labor cost can all be traced back to an individual, an
might also be applicable. If two contractors perform
operation, or a customer.
the same job, but due to the use of overtime, one costs
20 percent more than the other, then that means their
performances are not equal. Measuring labor cost by
job and contractor also provides insight into how well Contractor profitability
a contractor is performing and can help in constructing One of the more difficult tasks when managing multiple
future agreements with strategic contractors. contractors is ensuring that work invoiced has been
completed and is being charged according to the terms
of the contract. A speedy reconciliation and agreement
Quality also benefits the contractor, which is often squeezed for
cash and must pay subcontractors even if the contractor
Once beyond the tangible specifications of a discrete
has not received payment. In the worst-case scenario,
product, quality becomes a difficult attribute to measure.
contractors will refuse to continue work until previous
But it remains an important attribute of any process,
payment has been received.
as the lack of a quality product or service results in
increased cost of repair or poor ongoing performance.
Increasing the accuracy and speed of this process benefits
everyone. When this information is aligned with perfor-
The first step toward measuring quality is to define what
mance information, overall contractor performance can
a good-quality job looks like. Examples include:
be evaluated and used to make better decisions during
selection and negotiations. A labor management system
•  On-time performance has the ability to track and reconcile individuals to work
orders. It also allows supervisors to sign off on the job
•  Execution without unplanned outside assistance
A New Approach to Contractor Management in the Energy Industry

before it is forwarded to the ERP system for payment. Additionally, by tracking labor to understand effective-
Subsequent controls and approvals can be applied, but ness, the location and presence of these contractors
simplifying this initial review and approval by the energy are known to a much better degree. This results in an
firm’s employees who have responsibility for the comple- improved ability to account for labor during emergencies
tion of the work will speed up the approval and payment or identify missing workers in “man down” situations.
process.

Final recommendations
Environment, safety, and health Managing contract labor in the energy industry has its
In a relatively dangerous environment such as a refinery own set of unique challenges. Organizations that use
or power plant, the utmost care is taken to ensure the manual processes and systems are vulnerable to many
safety and health of workers and to minimize any impact risks, including the inability to control costs and comply
on the environment. An automated system allows you with increasing health, safety, and environmental regu-
to track safety violations by individual contractors and lations. An automated contractor management system
links your organizational safety policies to the time and designed specifically for the energy industry can help
attendance records of your contract workers. A contractor these organizations by providing real-time insight into
management system also helps to ensure that contrac- operations and the ability to measure performance using
tors have the right skills and certifications to work on a industry-specific key performance indicators. This infor-
job. Improved financial performance can also be realized mation allows organizations to take immediate action to
by understanding where and when a contractor uses and increase workforce productivity and utilization and close
bills for more skills and experience than a job requires. gaps in safety, health, and environmental compliance.

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