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A more rigorous approach to contractor management is helping asset-intensive companies in resources industries to succeed in the face of changes in the workforce, and build the high performance needed to win in the long run.
Under relentless pressure to control costs, companies in resources industries ranging from oil and gas to mining, chemicals and utilities are relying more than ever on outside providers to upgrade and maintain their critical production facilities and assets. But the management of contractors is not getting any easier, compelling companies to adopt a more rigorous approach.
Despite pursuing a number of asset management approaches, such as reliability-centered maintenance, predictive maintenance and operational excellence, companies often fall short in effectively managing the growing contractor workforce. Instead, they need to take a more rigorous approach that focuses specifically on building in-house contractor management capabilities and adopt a comprehensive framework that encompasses the end-to-end contractor management process.
In Accenture’s experience, those asset-intensive companies that have adopted this approach have seen savings of 10 percent or more in total cost of contracted services, as well as improvements in productivity, throughput and health, safety, security and environmental compliance.
Contractor management ensures that a company’s assets operate at the lowest possible cost through contracting out of non-core or very complex activities. However, turning this into reality can be a challenge. Misaligned strategies, ad hoc contracting decisions and problems with splitting the contract management process lead to complexities, inefficiency, reduced productivity and increased costs for the contracted service.
To add to the companies’ woes, employees with experience in project management and contractor management are retiring. At the same time, maintenance and small project work is growing in terms of budget, with 40-60 percent of non-fuel-related budgets now being devoted to such activities. And in several industries, growth initiatives mean that skilled employees and contractors are more likely to be diverted to support capital projects.
Accenture’s experience in asset-intensive industries has shown that there are several common signs of an ineffective approach to contractor management.
Companies often classify and assign work based on past practices rather than on a standardized identification of services and supplier competencies.
The technology used to support the selection, management and evaluation of contractor services is not integrated across functions and business units, resulting in silos of information that make it difficult to develop a coherent, broad contracting strategy.
Supplier qualification, selection and development can be often based on historical relationships and limited to qualitative/quantitative measures
The approach to defining the scope of work varies significantly for even common and similar jobs.
Processes to support the commercial transactions related to contractors span across operations and shared services, leading to inefficiencies and substantial resources spent on exception processing.
To build a more robust in-house contactor management capability, companies can draw on a comprehensive multifaceted framework that includes strategic activities, planning and execution activities.
An effective approach to contractor management entails a more robust and dynamic approach to strategy, planning and execution that companies would do well to adopt well before procurement and extend all the way through to contract execution, performance monitoring and continuous improvement.
Accenture has applied this approach within a number of asset-intensive companies and their capital projects—and delivered significant savings ranging from 5-25 percent in various costs. With an in-house contract management capability, companies can now take full advantage of the external contractor workforce to keep facilities up and running, improve health and safety compliance, and win the relentless struggle to control costs and build high performance.
Fred Vitale is part of Accenture’s Sourcing and Procurement practice and Global Capital Project Services practice and has more than 33 years of experience in the development and management of capital projects in 25 countries. Based in Washington, DC, Fred is also a member of Accenture’s North American Sourcing and Procurement leadership team.
Greg Anderson is part of Accenture’s Resources Operations practice and has more than 20 years of experience helping companies improve their operations and supply chain capabilities. He is based in Chicago.
Alex Brown is a Senior Principal in Accenture’s Operations practice with more than 15 years of consulting experience. He focuses on supply chain, including contractor management and is based in Salt Lake City, Utah.
Karin Stevens is part of Accenture’s Sourcing and Procurement practice working on improving clients’ supply chain/operations function through systems implementation and improvements, process and organization redesign, governance/metrics, capability development and strategic sourcing. She is based in Chicago.
Greg Setser is part of Accenture’s Sourcing and Procurement practice and has more than 10 years of experience focusing on source-to-pay process transformation and technologies. He is based in Dallas.
February 3, 2014
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