1660317421035 Vetcontractors

Engineering Advice: Properly Vet Contractors

Oct. 19, 2021
Some sensible steps can stave off unwelcome surprises

Engineers once flew around the country to check out contractors’ facilities before signing deals. Nowadays, many bosses instead heavily rely on the Internet. Unfortunately, a nifty-looking web site can make a firm seem impressive and much more capable than it actually is. You don’t want to discover the truth after a contract is signed.

So, let’s consider how to vet contractors, engineers, and consultants. First, understand their particular scope of work (SOW). The SOW should define skills very specifically. Second, make sure their bid is detailed; it must identify the skills required. Third, because the first level of defense in managing project cost is the contract manager, ask one question: “Does the bid make sense?”

Do a careful cost analysis yourself and revisit it once the bids come in. Each firm must give enough details in its bid to permit an honest evaluation. Many will be reluctant to provide labor rates. Use data from RSMeans to define labor hours and require the companies to provide labor costs based on a carefully defined cost schedule of the work to be completed. In practice, this can offer valuable insights. For instance, a plant I worked for needed a contractor to demolish a salt pit and construct steel to support equipment above. I knew from the analysis that three bidders understood the job; the fourth clearly didn’t because its costs were way too low for the demolition.

Now, let’s look at some traps to avoid in the vetting process. One of these is past performance; wealthy contractors and engineering firms can afford to scrub the Internet of their mistakes. Also, don’t regard a backlog of work necessarily as a sign of a good or competent firm, contractor or fabricator. Here’s another one: don’t put too much weight on another engineer’s recommendation of a firm — for several reasons: 1) past performance is a quantitative thing based on a particular manager; 2) each job is unique; 3) the capabilities cited may no longer exist or reside only in a specific satellite office; and 4) the engineer making the recommendation may view a project from a different perspective than you do, say, based on mechanical equipment, while you focus on instruments, leaving you open to blind spots in managing the work.

In fairness to contractors, many SOWs fail on their own lack of merits. You never should expect a contractor to do an assignment that is fuzzy on details, requires more hours than you can ask your management to assign, or doesn’t break down tasks by discipline. A common ploy is to slap a “not-to-exceed” label and live with an incomplete SOW — but this only leads to over-runs. In the end, your company may unfairly blame the contractor for its laziness or incompetence.

Fuzziness often reflects lack of experience. I once explained to a boss that he didn’t know what was involved in running 800 feet of threaded pipe because, unlike me, he never had done it. Remember your limitations and don’t make off-the-cuff assumptions.

As for the “requires more hours than you can ask your management to assign,” I am referring to detailed work such as updating piping and instrumentation diagrams. Assigning exact hours for these types of efforts is very difficult. They best are completed in-house.

Now that we’ve discussed why past performance is a poor measurement of a contractor’s qualifications, let me present some vetting tools you may want to consider. Bonding and insurance often are brought up but I’m an engineer, not an insurance expert; so, you might ask for your insurer to lend a hand. Investigating a firm’s safety record is tough unless it has gotten citations; instead look at its shop — tools that are put away in gangboxes tell a story, so does general cleanliness and wearing of safety glasses. Perhaps the best option is to ask questions: 1) Does the firm have contingencies? 2) Does it have other jobs to assign to workers during delays? 3) Has it worked with subcontractors before? 4) What equipment must it rent? And, most important, 5) does it have any questions? Lastly, investigate the company’s financial health, if possible; watch for red flags, e.g., spurts in cash flow; a low cashflow/debt ratio; and declining income.

In the end, vetting only goes so far. Our business is still about a handshake.

About the Author

Dirk Willard | Contributing Editor

DIRK WILLARD is a Chemical Processing Contributing Editor.

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