How Healthy Are Your Contracts? 8 Contract Areas to Review
Is there anything more vital than your health? Most of us would say no. Similarly, robust contracts are crucial--especially if you’re a Procurement Manager in the heavy-asset industry.
But how certain are you that your contract covers all potential scenarios, ensuring every "i" is dotted and every "t" is crossed? A contract health check can boost your confidence in contractor labor, equipment, and material agreements.
The devil is truly in the details, and the clearer you are when specifying these details and setting out how disputes will be managed, the fewer issues you will have with contractors and vendors. There’s never been a more critical time to build stronger relationships with specialized contractors and suppliers.
For example, as many as 39% of companies in North America are having difficulty finding frontline labor.
Healthy contracts (as opposed to unhealthy contracts) can lead to significant savings on contractor spend. Did you know heavy-asset industry companies can reduce their contractor spend by 10%-15% when they automate contract compliance?
Let’s explore eight critical contract categories and the key clarifications or questions to consider in each:
1. Labor Rates
If you're someone who has negotiated contracts, you know it’s complicated.
Key focus areas in contracts often revolve around compensation—everyone wants to know what they’ll earn. Contract negotiations can be intricate, addressing multiple scenarios:
- Are flat, swing shift, day shift, night shift, call-out, and overtime rates included? Are these rates listed, and are their applicable scenarios specified, such as premium rate adders?
- Are on-call allowances and daily labor allowances detailed?
- Does the contract clarify billable off-site work or training times and rates?
2. Invoicing
Prompt and accurate compensation is critical. With so many scenarios possible, invoices can be hundreds of pages long. Auditing each contract to ensure everything is in order can be nearly impossible. Protocols improve invoice accuracy and simplify audits, such as:
- Are time limits for invoice submission specified?
- Are different types of engagements like fixed fee and lump sum included?
- Are details like the requirement for timesheets, role-level specifications, and invoice naming conventions covered?
- Does the contract specify a rounding rule for chargeable time?
- Does the contract require whether invoicing for equipment must include a unique identifier (i.e., license plate or VIN) and should that be displayed?
3. Off-Site Time
Sometimes, work-related activities occur away from the worksite. Despite the regular occurrence, they are rarely addressed in contracts. Contract stipulations for off-site activities, often overlooked, should be clarified, such as:
- When is training chargeable and/or excluded?
- When are medicals chargeable and/or excluded?
- When are orientations chargeable and/or excluded?
4. Travel Time
Commuting between sites is common in industries like mining, oil and gas, or large-scale construction projects. Often, industries operate in remote areas, such as offshore oil platforms. Travel during shifts or for emergency callouts is also common.
It is important to clarify:
- Is travel time to and from the airport and worksite payable?
- Is travel time between worksites during a shift payable?
- Is time spent traveling offsite to collect materials, tools, and equipment payable?
- Does the contract specify whether mobilization and demobilization are chargeable in the contract?
- Does the contract specify whether travel time is payable in the contract?
- Is travel time between the typical accommodation and the worksite payable?
- Is travel time for flights to and from the worksite payable?
5. Roles and Skills
Many worksites can be massive. Thousands of trades people may be working the same shift. Compensation varies depending on competency level. A healthy contract will detail how many of each skill level is required on-site during each shift. Note that even if this level of detail is in the contract, it’s nearly impossible to ensure that it’s occurring in practice.
Contracts should specify:
- What qualifications, skills, and competencies are required for each role?
- Is a license to operate required?
- Is there a specific number or limit of apprentices for every journeyman?
6. Equipment
Heavy industry often uses mammoth, costly equipment. Determining compensation for every potential use case of the equipment is challenging as unforeseen circumstances occur on the worksite.
Just as there may be thousands of people on site, there could be a large quantity of equipment on site. Similarly, how can companies validate that the equipment that is contractually obligated to be on-site is there?
It is critical to answer these questions:
- What are the daily, weekly, and monthly rates for individual pieces of equipment on site?
- Are receipts required to substantiate equipment charges?
- When is the relevant rate on each piece of equipment to be applied? (i.e., hourly, daily, weekly, monthly, etc.)
- Does the contract include any additional equipment charges?
- Can the vendor charge a mark-up on out-of-contract equipment?
7. Materials
Outside materials are often required. The materials that may be necessary should be part of the contract. If they are not in the contract, you’re at the mercy of the invoice. With the rising cost of materials, it is important to avoid billing surprises.
Contracts should detail:
- Are mark-ups applicable?
- What is the unit of measurement for items?
- Are there any payable fixed costs?
- Are technology-related charges addressed?
8. Other Considerations
You also should consider:
- Are lunch breaks or standby times billable?
- What are the policies for early arrivals or making up for late starts?
- Can employees make up time if they are late for work?
Ready to Create Healthier Contracts?
You work hard to negotiate a great contract that spells out the details and is fair for all players. But are you considering all the scenarios that may arise?
Ask the tough questions and create a healthy contract that is operational. You’ll not only reduce disputes but could save up to 15% or more on contractor spend.
Need help creating a healthy contract? We help our myTrack customers create healthy contracts, gain real-time insights into their contractor relationships, and make data-driven decisions.
How myTrack Can Help
Many heavy-asset companies choose myTrack to reduce costs, control spending, and make contractor management more efficient.
Firms get real-time data, automated tracking, and integrated contract compliance. The easy-to-use digital tool gives heavy industry firms unprecedented visibility into their workforce, productivity, and spending through a comprehensive set of capabilities.
With myTrack, your business can minimize its procurement challenges and ultimately build stronger working relationships with vendors. You’ll gain real-time insights into your contractor relationships, ensuring compliance, accurate hour and dollar calculations, and seamless integration with your ERP system. Contractors get paid accurately and on time, with labor and hours validated through access control and gated systems.
Get in touch if you’re ready to take the next step. You will streamline back-office processes and support greater overall productivity, job site safety, spend visibility, and build stronger vendor relationships.
