Unlock

Contractor
Potential
Top 14 Contractor Performance
Metrics for Heavy Industry
With Formulas

PayShepherd 2023 1
Introduction
How do you ensure your external workforce
is rowing in your same direction to meet
your organizational goals? Create metrics
to objectively measure vendor performance
for your most critical project demands. Then,
communicate your evaluation process with
your contracted workers so they understand
your expectations and have a fair chance to
meet or exceed them.
Sharing benchmarks with your contractors
supports them to continuously improve their
skills and creates an accountable workplace
culture. Regular evaluation protects your
business, informs stronger decision making
and highlights areas where intervention can
support relationship building and business
continuity.
• Spend Management
• Compliance
• Safety
• Communication
• Environmental, Social &
Governance (ESG)
• Process Efficiency
• Quality
Targets for each metric should contribute
to meeting your larger corporate goals,
allowing success to be achieved at all levels
of the organization. To safeguard your critical
service vendor relationships, the following 14
metrics support proactive risk mitigation and
drive continuous improvement.

When all your teams work towards a

common goal with predefined metrics,
everyone can focus on what matters most. “One of the biggest
It also sets the stage for authentic and
pitfalls for performance
effective performance conversations.
measurement is to
To implement well-defined metrics you can measure the “part” with
break them down into essential building
blocks that used together facilitate holistic ignorance of the “whole.”
vendor relationship management Here is a
(not exhaustive) list to get you started: – Pearl Zhu

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 SPEND MANAGEMENT

METRIC 1:
Total Cost of
Ownership

C
O
Y

M
IT

PL
AL

IA
QU

NC
METRIC 13: METRIC 3:

E
Service Level Contract
Agreements METRIC 2: Terms
Compliance Adherence
Cost
Variance
METRIC 14: METRIC 4:
Customer Planning
Satisfaction Quality
Score

METRIC 12:
Contractor
Average
Performance METRIC 6:
Fatigue
PROCESS

METRIC 11: Number of METRIC 5:

Change Management
Average Orders Score Total
Process Cycle Recordable

TY
Time Incident Rate

SAFE
EFFIC

METRIC 8:
I E NC

METRIC 10:
Scope 3 Issue
Y

Emissions Resolution
Rate

METRIC 9: METRIC 7:
Local Average
EN

RO Content Response
VI

NM Ratio Time
EN
TA
L ,S N
OC
IAL ATIO
&G NIC
OV MU
ERN
ANC COM
E (ESG)
CHAPTER ONE

Spend
Management
Take Back Control

Spend management includes all the strategies, practices

and processes you use to achieve the best value from
service vendors. Strong decision making in this area protects
your company’s bottom line while boosting efficiency and
supporting continuous improvement.

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Metric 1:

Total Cost of
Ownership (TCO)
What it means Why it matters

Total cost of ownership (TCO) is one
of the most popular strategic levers to
create value throughout the entire value
chain. As a metric, it identifies all possible
costs, direct and indirect, and calculates
how much the product or service will
cost in totality.
TCO is a chief performance metric because
it’s the extensive picture of what a purchase
truly costs and it defines its return on
investment (ROI). Understanding it supports
more informed decision making and cost
optimization strategies.

Typically included in examining TCO are

cost price and supplier margin as well as
all the other variables involved in owning How to measure it
and operating the asset, such as:
To measure TCO on any given purchase,
• Purchase price: cost price
and supplier margin. consider all associated costs incurred
during its life– from design, installation,
• Cost incurred: transport, packaging,
customs duties and payment terms. commissioning and maintenance,
• Cost of ownership: stock
through to asset disposal-and include
management and depreciation cost. any other costs related to the service
• Cost of maintenance: spare lifecycle.
parts and servicing.
• Cost of usage: use value,
operation and services.
• Cost of poor quality: deadline compliance
and non-compliance processes.
• Cost of disposal: recycling, resale and
destruction.

Formula

Purchase Price + Cost Incurred + Cost of Ownership + Cost

of Maintenance + Cost of Usage + Cost of Poor Quality +
Cost of Disposal = TCO
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Metric 2:

Cost Variance
What it means Why it matters

Tracking cost variance reveals potential Cost variance is important in tracking a

over-or underspend. Understanding
these fluctuations supports strategic
planning for effective cost reduction.
The metric also reveals how an expense
line item, project or any budget is
performing financially.
project’s financial progression. Because
variances can monumentally affect the
whole project, it’s necessary to keep tabs
on them on a regular basis.

Positive cost variance:

Indicates an underspend that stayed
below the budget.
Negative cost variance:
Reveals an overspend that’s gone
over the budget.
How to measure it
Determine contractor cost variance
by comparing budgeted costs versus
incurred costs.

Causes of unexpected cost variances

include direct labor costs, direct goods
costs and overhead costs. Variances
may also signify deviations in terms
and overall performance or changing
circumstances around the planned
project scope.

Formula

Budgeted Cost - Actual Cost = Cost Variance

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CHAPTER TWO

Compliance
Get Max Value From Contracts

Ethics and compliance metrics confirm all legal, regulatory

and contractual obligations are met.

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Metric 3:

Contract Rate
Adherence
What it means How to measure it

Receiving maximum value from your Calculating a vendor’s compliance score

contracts depends on your ability
to measure and evaluate contract
compliance. High compliance and terms
adherence indicate service is delivered
as promised–in pricing, timing,
quality and more. Measuring contract
compliance is a hefty task, particularly
for businesses managing high-risk and
high-volume contracts.
is complex so it’s best turned over to a
technology solution that automatically
tracks obligations and contract data in
real time. Otherwise, internal processes
should be implemented to define how the
following data points are to be collected
and measured.

Why it matters

High contract and terms compliance

valuations indicate your company’s
processes are well-implemented and
vendors are following them. Effective
contract compliance practices
eliminate multiple risks, including
reputational damage, legal action
and poor customer experience.

Formula

(Number of Anomalies / Number of Contract Terms)

x 100 = Contract Compliance (%)

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Metric 4:

Planning Quality
What it means How to measure it

While measuring vendor performance To measure planning quality, identify the

facilitates continuous improvement,
ensuring you’ve provided enough detail
in your requisitions to set your contractors
up for quality planning on their end of the
agreement is also important.
key performance indicators (KPIs) that
matter most to your project, assign each
a weighted value and compare them
against the project’s outcomes.

Why it matters

Regular evaluations of how

performance is progressing against
project planning identifies gaps in
quality planning and uncovers areas of
opportunity to boost success.

Formula

(W1 x Metric 1) + (W2 x Metric 2) + (W3 x Metric 3) + ...

+ (Wn x Metric n) = Planning Quality Score

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CHAPTER THREE

Safety
Nothing Matters More

Measuring vendor performance around health, safety and

security is critical, in the most literal sense. Not only does it
minimize risk, it protects your organization and all stakeholders
from threats to health, finances and operational continuity.

While total recordable incident rates and frequencies (TRIR

and TRIF) are critical standard industry metrics informing
reports that provide insight into actual and potential onsite
incidents, these metrics are taken after an incident has
already occurred. To ensure the health and safety of your
workforce, it is imperative to also monitor preventative metrics
such as fatigue management.

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Metric 5:

Total Recordable
Incident Rate (TRIR)
What it means How to measure it

TRIR is the ratio used to measure TRIR is calculated as a representation of

occupational health and safety based on the number of recordable injuries per 100
the number of reported safety incidents full-time workers over a one-year period.
compared to the number of hours worked
by all workers onsite. It provides direct
insight into a vendor’s, or an asset’s, past
safety performance.

Why it matters

TRIR may be used to compare different

vendors in terms of their work safety
performance history. Beyond the
number one priority of protecting your
people from life-threatening incidents,
minimizing onsite TRIR is critical to
protecting your business from OSHA
inspections, legal consequences and
operational interruptions.

Formula

(Number of Incidents X 200,000) / Total Annual Hours

Worked = TRIR

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Metric 6:

Fatigue
Management Score
What it means How to measure it

In heavy industrial facilities where Supervisors should monitor workers’

shift work and long hours along with
mentally and physically demanding
work are common, metrics that point
supervisors to cases of potential reduced
alertness can be literal lifesavers. In
addition to Occupational Health and
Safety standards, maximum work hour
thresholds are set and enforced at the
regional and industrial policy level to
avoid worker fatigue.
hours and consecutive days onsite to
proactively manage fatigue. Contractor
Management Solutions like PayShepherd
can alert you to approaching fatigue
thresholds being crossed onsite.
A vendor’s Fatigue Management
Score score guides future hiring and
contractual decision making.

Why it matters

Worker fatigue directly affects all workers

in an area. A key determining factor in
impaired judgment, slower reaction time
and increased risk of accident or injury,
fatigue can halt operational productivity.
Additionally, tired workers are more likely
to make costly mistakes and take longer
to complete their tasks.

Formula

(Number of Hours Worked Below the Fatigue Threshold /

Total Hours) x 100 = Fatigue Management Score (%)

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CHAPTER FOUR

Communication
Create Clarity & Transparency

Communication metrics support you to outline clear

expectations, create an accountable workplace culture,
identify areas for improvement and build trusting
relationships with your contractors.

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Metric 7:

Average
Response Time
What it means How to measure it

Vendor responsiveness refers to how
quickly vendors respond to your requests
or inquiries by either acknowledgement,
PO acceptance, rejection, change request
or asking questions.
Track the time it takes for contractors
to respond to communication,
ideally broken down into the type of
communication.

Why it matters

High responsiveness metrics support a

successful value chain. Understanding
where responsiveness lags helps you
minimize risk by identifying, reviewing
and modifying your vendor management
approach. High responsiveness indicates
a vendor is committed to customer
service and has a collaborative mindset.

Formula

(Total Response Time for All Requests) / (Number of

Requests) = Average Response Time

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Metric 8:

Issue Resolution Rate

What it means How to measure it

Issue resolution rate measures the Measure issue resolution rate by tracking
percentage of issues successfully the number of issues raised and resolved
resolved within a specific timeline. High within a specific timeframe.
rates indicate your service vendors
effectively address and resolve concerns
to support a strong working partnership.

Why it matters

Knowing your issue resolution rate keeps

your finger on the pulse to minimize
disruptions, identify the suppliers most
committed to your goals and maintain
efficient operations.

Formula

(Number of Resolved Issues / Number of Total Issues)

x 100 = Issue Resolution Rate (%)

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CHAPTER FIVE

Environmental,
Social &
Governance
(ESG)
A Growing Priority

ESG is an increasingly important framework used to manage risk

and opportunity according to each of its three priorities. It takes a
holistic approach to sustainability beyond environmental issues
into community investment, ethical behavior and other enriching
workplace objectives such as inclusivity.

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Metric 9:

Local Content Ratio

What it means How to measure it

Local content commitments include Measuring the local content ratio

governmental, regulatory and union
mandated policies that set minimum
numbers for contractor sourcing based
on proximity to the worksite. These
thresholds may be measured in a
number of ways such as: percent local
spend, percentage of local workers,
use of local equipment and obtaining
local resources.
requires a review of each vendor’s policy,
demographics and commitment to local
communities. Establish benchmarks
according to industry best practices and
standards, typically set as minimum
thresholds or percentages. Use your
vendor data to determine the amount
of locally sourced goods or services they
offer, and use that to calculate each
vendor’s local commitment score.

Why it matters

Maintaining strong local content metrics

as part of your vendor performance
evaluation is just good business across the
board. A high local content commitment
ratio shows a vendor is compliant with
industry standards and regulations, proves
their commitment to local economic
development and community investment,
and it demonstrates responsible,
sustainable business practices.

Formula

(Total Value of Goods and Services Procured Locally /

Total Value of Goods and Services Procured) x 100
= Local Content Ratio (%)

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Metric 10:

Scope 3 Emissions
What it means How to measure it

Scope 3 emissions refer to indirect Scope 3 emissions are measured by

greenhouse gas emissions that occur
outside a company’s direct operations
but within its value chain, including both
upstream and downstream activities.
vendor using data collection by category,
according to emission source and with
an assigned emission factor for each.
Emission factors, such as total purchase
spend, employee commute emissions or
waste generation emissions vary based
on industry, location and vendor type.

Why it matters Measuring Scope 3 emissions is highly

complex, so calculation requires a
Good Scope 3 emission metrics indicate case-by-case approach.
a vendor is committed to addressing
climate change, managing risk, meeting
regulatory compliance and maintaining
a good reputation for their business and
yours. This data supports procurement to
make informed decisions about vendor
selection, contract negotiations and
emissions reduction targets.

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CHAPTER SIX

Process
Efficiency
Streamline with Confidence
Evaluating contractor process hygiene performance provides
insight into how well each vendor manages operations and
resources in addition to how efficiently they execute on the job.

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Metric 11:

Average Process
Cycle Time
What it means How to measure it

Process cycle time measures the
completion timeline for a specific task
from start to finish. The shorter the
cycle time, the greater the vendor’s
process efficiency.
To measure process cycle time, track
the time required to complete specific
tasks and compare them to your own
established benchmarks or industry
set standards.

Why it matters

Process cycle time directly impacts onsite

productivity. That translates to project
cost savings, effective timelines and
quality production.

Formula

(Total Processing Time) / (Number of Completed

Process Cycles) = Average Cycle Time

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Metric 12:

Average Number
of Change Orders
What it means How to measure it

Change order frequency is your sightline Compute change order frequency by

into the number of changes to project
scope, timeline or other service vendor
deliverables. The lower the frequency, the
stronger the indication of strong project
planning, management, expectation
alignment and process efficiency.
tracking the number of change orders
directly related to a specific vendor–
outside of work package scope changes
not in their control–in a specified time
window and compare it against your own
benchmarks or industry standards.

Why it matters

High change order frequency drives

higher costs, longer delays and project
disruption, so identifying repeat
offenders or internal planning
deficiencies is important to making
necessary corrections.

Formula

Total Number of Change Orders Initiated by the Vendor

/ Total Number of Projects Assigned to the Vendor =
Average Number of Change Orders per Project

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CHAPTER SEVEN

Quality
Accept Only the Best
Quality metrics support you to ensure your service vendors
meet or exceed your organizational expectations and drive
project success.

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Metric 13:

Service Level
Agreements (SLAs)
Compliance
What it means How to measure it

SLA compliance metrics reveal the Measure SLA compliance by tracking

percentage of service commitments
each vendor meets. Vendors with high
SLA compliance scores demonstrate
strong commitment to meeting your
project and organizational requirements.
vendor performance against SLA
commitments and then calculating the
compliance rate as a percentage.

Why it matters

Staying on top of SLA compliance ensures

your vendor services are up to agreed-
upon standards, prevents quality issues
and assures higher quality all around.

Formula

(Number of SLA-Compliant Service Items / Total

Number of Service Items) x 100 = SLA Compliance (%)

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Metric 14:

Customer
Satisfaction Score (CSAT)
What it means How to measure it

A vendor’s CSAT score is an evaluation of CSAT is typically measured through

organizational stakeholder satisfaction
for all parties who interact with the
service vendor. A high CSAT points to a
vendor who effectively meets or exceeds
organizational standards.
regular surveys or other stakeholder
feedback. A simple calculation might
look like this:

Why it matters

Using CSAT scores allows you to easily

identify the vendors most likely to partner
with you in driving long-term success for
your company.

Formula

Total Score of All Survey Responses / Total Number of

Survey Responses = CSAT

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Measure It, to Manage It
with Excellence
Once you’ve identified and implemented the most important contractor performance metrics for
your facility, put them to work with the Queen of all metrics: the Contractor Performance Score.

Bonus Metric 15:

Contractor
Performance Score (CPS)
What it means How to measure it

If the first 14 metrics are the musicians,
the Contractor Performance Score is the
conductor. The CPS gives you an immediate
view of your best performing partners and
the ones that require your attention.
Start by defining a scale of success (1-10
or 1-100) to define success scores and
apply a weight of importance to each
of the above metrics. The addition of all
weights must be 100%.

Why it matters

The Contractor Performance Score

creates a systematic approach to
tracking, measuring and evaluating
performance. Create and use it to foster
a culture of transparency where open
communication is encouraged and used
to strengthen relationships.

Formula

(Success Score 1 x Weight 1) + (Success Score 2 x Weight

2) + (Success Score 3 x Weight 3)... + (Success Score 14 x
Weight 14) = Contractor Performance Score

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Final Thoughts
There’s a growing dependence on a
contracted workforce to meet heavy
industry’s demand for flexible, agile
and skilled labor to successfully
complete capital and maintenance
projects. How these vendors perform
impacts your company’s production,
quality and ultimately, your
reputation. It’s never been so critical
to stay ahead of the competition with
access to top-notch service providers.
To continually ensure you’re working
with the best of the best, your
evaluation process must be accurate,
unbiased and efficient. With outdated
manual contractor performance
monitoring, this was an impossible
ask. Historically, evaluations tended
to be inaccurate, time consuming
and obscure, lacking the granularity
the current competitive environment
demands.
Today’s digitized solutions
automatically collect and analyze
contractor data at the worker level
across multiple projects. By providing
the real time insight you need to
assess performance in actionable
ways, these technologies extend
your human capacity to strengthen
PayShepherd 2023
relationships rather than breaking
them down.
As you create and monitor contractor
performance metrics and put them to
work, you’ll finally answer:
• Who are my strongest
business partners?
• Which contractors have the best
opportunities for improvement or
require the most attention?
• Where exactly are they falling
short or excelling?
• How can I work with my vendors
to drive value and support my
company’s growth agenda?
In today’s age of information, knowing
what to measure and how to turn
these insights into business decisions
quickly gives you the competitive
edge. This new era of accessible
quality contractor data is an
unprecedented opportunity for heavy
industry leaders to create a culture
of transparency and accountability,
turning their service providers into
business partners.
26
Create an Objective
and Transparent
Performance System
with PayShepherd
The 14 contractor performance
metrics we’ve just overviewed Such holistic clarity in evaluation
depend heavily on effective tracking. enables contractors to understand
Performed manually, it’s extremely expectations and continually refine
time and brain power consuming their skills, fostering a culture of
– sometimes plain impossible. growth and excellence. Investing
Turning this manual monitoring over in the development of contractors
to an automated solution gives an unlocks the potential for mutual
objective and accurate view that success and shared pride in
allows for strategic decision making achievements.
and continuous improvement.
Together, let’s shape the future
PayShepherd empowers heavy of industrial facilities and drive
industry leaders across the world unparalleled progress.
with high-quality contractor daily
data analytics to allow for real time
performance management. Our
Find out today. Let’s talk
proprietary Vendor Relationship
solution analyzes six areas of
performance: Spend, Safety,
Compliance, Communication, ESG,
and Process Efficiency.

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