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SaferPak: Food Packaging Safety, Food Safety, Business Improvement and Quality Management
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Treat ‘em like your own! – The management of contracted services
By David Powley - DNV Certification

Your organisation may have most things under control but are you sure that all is well with the companies you have appointed to act on your behalf? Do you know if they present risks to your prosperity, reputation and people? David Powley of DNV Certification offers advice not only from the view of an integrated certification audit but also with respect to business risk.

Firstly a definition of contracted services is in order – the activities performed by a contracted company on behalf of and often in the name of the contracting company. They can be performed on or off-site. Contracted services are many and can include haulage, maintenance, consultancy, construction services, installation, training provision, facilities management, catering and much, much more.

High profile tragedies, accidents and incidents have often revealed failures, on the part of the organisation concerned, to manage its contracted situations. Apart from actual criminal action these cases lead to reputation loss. Furthermore, there are an almost infinite number of cases of organisations letting down their customers not so much as a result of their own performance but that of those contracted to act on their behalf. Many of these cases have ended up in civil courts and those that do not can at least result in business and reputation loss. One of the several common issues between the regulatory and commercial worlds is that both regulators and customers are unforgiving (but correct) in their assumption that the contracting organisation has the majority, if not all, of the responsibility. Customers certainly will not have patience with tales of woe about the contracted service – they did not have the commercial transaction with them.

The difficulty facing contracting organisations is that although they are responsible for the actions of the contracted organisation that they appoint, it is because they do not have the capability (or possibly the capacity) of the contracted organisation that causes them to make the appointment in the first place. However, in the eyes of regulators and customers the contracting organisation is merely contracting out the task – but certainly not the responsibility. In order to fulfil a responsibility it is necessary to gain as much control as possible. So, how can control be achieved?

An organisation will always feel comfortable about the control over the staff it has on its payroll. A manager within that organisation may ask if it is possible to have that level of comfort with contracted services and the staff employed therein. The answer is yes provided that you learn why you have comfort with your own people. Why not therefore consider the steps that are taken for the appointment and management of own employees and maybe adopt them for contracted services appointment and management?

What happens in the case of employee appointment and management?

All organisations, consciously or not, employ methods of human resource capability management (HRCM). When one looks at the life cycle of capability assurance for a function in an organisation we have the following simplification:

Step 1 Definition
Understand and define the risks and needs together with the desired capabilities, requirements, characteristics, behaviour and accountability of the function.
Step 2 Decision
Communicate (in advertisements etc) the ‘definition’ in step 1 in a suitable form to those interested and appropriate. Consider all appropriate external and internal candidates by a variety of means including questionnaires, interviews, reference checking, verifiable previous work, behaviour, domestic and external circumstances etc. Decide on a candidate or candidates with ‘best fit’ credentials according to ‘Definition’ in Step 1. Above all else, at this stage it is important to make an estimation of how the candidate is likely to perform for your organisation in the role concerned.
Step 3 Contract
Create and agree, with the preferred candidate, an agreement regarding responsibilities, behaviour, performance, terms and conditions, benefits etc, largely based on ‘Definition’ in Step 1. Cost considerations come into this step and step 2 on two conflicting fronts - the cost in terms of expected salary and conditions and their affordability; the cost suffered by the organisation as a result of a ‘cheap appointment’ ultimately causing loss and / or poor performance. This is important.
Step 4 Management
Once the employee is appointed in employment, the manager uses methods to manage and continually evaluate performance of the employee against criteria (largely based on steps 1 and 3) and apply correction or reward as necessary. In the event of failure to deliver according to ‘Definition’ and ‘Contract’ some correction and even sanction may be applied which may also be according to the that agreed in step 3. In this event an improvement plan may be agreed upon, which on occasions may involve just as much contribution from the company as the employee. In general, a manager will apply a level of control on the employee as necessary, depending on the level of comfort felt.

Can these steps be applied to, adapted or even adopted for the management of contracted services?

Using the employee management analogy and with some extrapolation and imagination the logic can be appreciated and exemplified with the aid of a hypothetical case. The contracting of a haulage service may serve to illustrate (see fig 1). The assumption here is the transportation of a variety of hazardous and non-hazardous liquids to customer sites, with vehicles and trailers carrying your company livery.

Fig 1 - Appointment and management of a bulk liquid haulage service

Step 1 Definition
1. Estimate all possible scenarios in which a haulier can let you down. This may include late arrivals and deliveries, unacceptable conduct and performance at customer sites, poor road performance causing road traffic accidents, poor maintenance of tractor, trailer and barrel and more. This process is akin to determining the significant risks and aspects in the health, safety and environmental management system standards as well as deciding on what is critical within a quality management system.

2. Based on point 1, define the selection criteria. This could include being regulated by an audit protocol for hazardous goods transport, deployment of an adequate level of resource, registration to a quality management standard, working to a maintenance management regime, good performance at customer sites, on-time deliveries, driver capability and traffic accidents etc.
Step 2 Decision
1. Communicate (to all likely candidate haulier's) the expected selection performance criteria developed from step 1.2 above.

2. Consider candidate haulier's within the selection criteria in step 1.2. This can be achieved by witness & observation, interview, discussions with their current customers regarding satisfaction, consideration of their legal performance by discussion with regulators, audit of their management system, checking their maintenance management system, checking their registration status regarding management system standards, checking the gravity and number of non-conformities issued by their management system certification bodies, asking for procedures they would use to service your contract etc.

3. Make final decision on desired haulier.
Step 3 Contract
1. Develop a contract and a mutual understanding of expectations with the haulier based on as much as possible of the criteria developed in step 1.2 above. This could include terms and conditions, quantitative key performance indicators as well as provisions for penalty, sanction or even a ‘get-out’ as well as extra reward when performance is exceeded or continually met.

2. Ratify the contract when agreement reached.
Step 4 Management
On-going management and monitoring against selection criteria and contract details in steps 1.2 and 3 respectively. This is a matter of discussing with the haulage service, at defined periods, the actual experience of working with that service. Alternatively this could be managed on a continuous basis. Whichever approach is taken it is important to have a method of recording performance issues (e.g. late deliveries, accidents, incidents, exemplary performance etc).Any necessary improvement could be formulated in a plan that could be incorporated into a new contract, come the time of re-negotiation.

It is worthwhile considering some issues (with reference to fig. 1) in the application of this model in order to show the close relationship with employee capability assurance.

This process is only usefully applied in the cases of critical services (i.e. critical to quality, environment, safety and health or business risk generally). It would not be appropriate to apply it to the delivery of pizzas – unless of course food hygiene is of acute concern! This criticality consideration is also applied to employee capability and reliability – some jobs are more critical than others and therefore the effort should be commensurate. In this case the contracting organisation sensibly decided that the haulage of hazardous materials is critical.
It is advisable to do a thorough job in the haulier selection in steps 1 to 3 (i.e. up to and at contract establishment). After that, it may be very costly to recover the situation in the event of unacceptably poor performance. This is recognised in the case of recruitment of personnel to critical roles because no organisation likes the trauma and waste associated with unsound appointments.
Cost is important in selection but a cheap appointment could be giving you an unacceptably high and hidden cost for the future. Today’s success for the accountant or procurement manager may be the future burden for people responsible for logistics, production, quality, environment or health & safety or the company as a whole. You would not employ an individual to a critical role solely because that individual comes cheap - unless you like living on the wild side!
ISO or OHSAS registration is a good criterion for haulier selection but should it be the sole selector? It is if you think that it is acceptable to employ someone on the basis of qualifications alone. Obviously you will want more - you want to know how they will perform for you.
Questionnaire completion by the prospective haulier's may be carried out at step 2.2. This is fine provided it is not the sole and complete evaluation tool without verification. You do not rely totally on what candidate employees say about themselves so why in the case of prospective services?
Constant ‘organisational turbulence’ in a haulage company can be damaging when a no-surprises level of consistency in performance is essential. This can be foreseen if step 2 is carried out properly. This consideration is akin to an organisation gaining some security in the knowledge that a stable life outside of work is supportive for employees in critical roles.
It could be said that this model is most suitable for the longer term critical services and may be modified with less effort for the one-off jobs. This could be true but a badly performed one-off job can create a disaster – always think of the criticality. This is analogous to temporary or short term employment in critical roles.

The foregoing is admittedly generalisation and simplification but it is hoped that the logic in the approach can be appreciated. This logic is under-pinned by the theme that organisations ordinarily take more care with the appointment and management of their employees than is the case for their critical contracted services. The approach described may be open to choice or criticism but the need to manage contracted services with more care than is the case cannot be disputed. The evidence basis is not only in the plaintiff moans within customer complaints but more seriously - in the news headlines.


David Powley is a well recognised and highly experienced integrated management systems Auditor and Trainer with DNV Certification. He is the author of numerous articles on management systems for quality, environment and health and safety. DNV Certification is one of the world’s leading certification bodies/registrars offering the latest in management systems certification services. With more than 49,000 certificates issued worldwide, our name evokes a strong commitment to safety, quality, and concern for the environment. DNV recently launched Risk Based Certification™, a fresh approach to auditing. For further information on Risk Based Certification or any other service DNV offer please visit www.dnv.co.uk/certification or call 020 7716 6543.







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