3 Ways to Manage Third Party Risk in Construction

3 Ways to Manage Third Party Risk in Construction

Hiring third parties in construction can pose risks in construction, but with a clear strategy in place, those risks can be managed.

Third-party contractors are a common way to distribute construction labor and leverage specialized expertise. Most residential projects involve an average of 24 subcontractors, and there are often more on the commercial side.

But as OSHA rules state, any time you hire a third party in construction, you assume responsibility for their actions on a job site. And without the right processes in place, these third parties can pose an enormous risk to your operation. If someone lacks the right safety training for instance, you could be liable for any injuries that occur on site – along with any regulatory fines that result.

In order to manage third-party risk, it helps to have a clear strategy. Here, I’ll share three best practices that can help.

1. Centrally Organize Documents

You need specific documents on file for every third-party contractor. At a minimum, this typically includes a:

  • Subcontractor contract agreement
  • Certificate of insurance (COI)
  • Certificate of bond

These documents can quickly become tough to manage, though, especially as you expand your team. And if a third-party worker gets injured on site, the last thing you want to do is to comb through physical and digital folders to find their insurance information.

That’s why it’s important to have a system – ideally digital – for organizing and filing documents. Make sure:

  • Create a document checklist. The right software should let you customize this checklist for various types of third parties (e.g., one for electricians, another for carpenters, etc.).
  • Clearly label each document. A standardized naming system makes it easier to find docs when you need them.
  • Centralize your document storage. Cloud-based software is helpful here; it lets you access your files from anywhere, whether you’re at the office or on a job site.

With a solid system in place, you can more efficiently manage third-party documentation. And if an incident or audit occurs, you can quickly locate any files you need.

2. Clarify and Communicate Safety Requirements

While many general contractors (GCs) have similar safety requirements in place, they’re not carbon copies. Third-party contractors work with multiple GCs, so they need to know your company’s specific requirements.

It’s your responsibility to make sure all third parties have the same level of training and consistently meet your safety standards. After all, the last thing you want is for an incident to occur that could have been prevented if that worker had the right upfront safety knowledge.

Before you clear third-party contractors to work, make sure they’re familiar with:

  • Safety best practices. This includes everything from fall prevention to proper PPE use.
  • On-site hazards. Workers should know about common hazards and have easy access to safety data sheets.
  • Incident reporting workflow. Workers should understand how to report incidents if they occur.

For certain contractors, it’s also important to gather proof of specialized training. Electricians, for instance, likely need NFPA 70E certification so they can minimize the risk of shock and electrocution.

To keep tabs on each contractor’s safety education, I recommend using safety management software. The right tool should let you:

  • Customize your safety curriculum. You should be able to design custom training modules or pull from a preset library.
  • Track safety education progress. For example, there might be a dedicated progress bar for each third party that shows the percentage of completed requirements.
  • Use mobile for ongoing education. A mobile app lets workers brush up on safety procedures no matter where they are on site. The most effective software will support microlearning (i.e., bite-sized safety education) to make continuous learning a manageable experience.
  • Push safety reminders at custom intervals. For instance, you might set up weekly reminders to complete a digital toolbox talk. Then, workers can choose how they prefer to receive notifications (email, SMS, or push).

With a tech-first approach to safety education and communication, you can more easily mitigate risk.

3. Integrate Point Solutions

I’ve emphasized the value of digital tools a lot so far. They let you easily organize, access, and automate a lot of safety and risk management practices.

But too many companies rely on disconnected point solutions: one tool to track COIs, another to manage safety education, a third for incident reporting, and so on.

This approach isn’t just expensive. It opens up companies to additional risk. The more point solutions in use, the easier it is for information to fall through the cracks. And if there’s an audit, it’s harder to pull a unified record for individual third parties.

That’s why I suggest using software that integrates as many core functions as possible. That includes all of the capabilities we’ve explored here, along with:

  • Asset management tools that make it easy to inspect and maintain your equipment.
  • Reporting tools to stay on top of crew safety trends and near misses.
  • A compliance calendar that provides a 30,000-foot view of upcoming trainings, inspections, and deadlines.

More integration gives you all the information you need in one place. The benefit: third-party management with a lot less headache.

Third-Party Safety Matters for Your Safety Culture

Managing third-party risk takes time. But a tech-forward strategy can shave hours off your day-to-day work. What’s more, you’ll be able to better ensure safety compliance with every third party you contract.

That safety benefit is huge. When everyone on your crew maintains a safe environment, they can make inroads toward building a strong safety culture that protects workers and your company.

This article originally appeared in the June 2024 issue of Occupational Health & Safety.

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