In today’s utility business, contractors perform the largest share of work in new construction, replacement and – sometimes – maintenance. This heightens everyone’s need for cooperation to assure safety and to control quality.
Contractors and their utility clients operate under different business models due to the fact that contractors are not directly regulated under pipeline safety regulations while the utilities are regulated by federal and state pipeline safety regulations and rates. This difference in the way business is conducted often results in a difference in the way safety and quality are viewed and managed by contractors.
On the one hand, many contractors operate so as to meet their minimum – and only their minimum – requirements. On the other hand, some contractors conform their safety and quality practices to the regulated requirements governing the utilities. These contractors operate in lock-step with the utilities.
Many contractors have a culture of minimum “compliance.” Then, there are contractors – so-called best-value contractors – who exhibit a culture of discipline and a commitment to personal responsibility.
Let us consider the historical model of contractor selection. The pre-qualification of contractors who will be allowed to bid work increases the utility’s likelihood of getting better crews on the project. In the historical system, most utilities – with some exceptions – have a qualification process in which the contractor is asked to submit requested information to a central point (Figure 1). The submitted data from the contractor includes:
- OSHA Reportable Incident Rate/Total Incident Rate (TIR),
- Total Lost Time (TLT),
- Recordable Cases/Total Reported Cases (TRC),
- Days Away, Restricted or Transferred Duty (DART),
- Contractor’s Insurance Modifier Rate (IMR),
- OSHA Citations,
- Contractor’s Safety Program,
- Safety Manuals and Procedures.
Figure 1: Contractor Submissions.
A major issue in this historical process is that these submitted contractor manuals and policies rarely get updated and – normally – they are not even seen or used by the utility operating group.
Contractors that meet the minimum customer requirements at this point are permitted to bid on the customer’s projects. Qualification, in the utility’s eyes, means that any contractor on the bid list is on a level playing field and any differences become just pricing (i.e. just low price, not best total cost). Upon selection, the contractor is given a contract to sign with strict indemnification language that holds the contractor responsible for performance to the limits of the contractor’s insurance coverage.
The contractor may be limited to only one copy of the utility’s construction standards for reference and, in many cases that is all the contractor maintains. In this case, the contractor may rarely see revisions to the utility’s construction standards.
The required operator qualification (OQ) – including training and record keeping – may be conducted by the contractor, many times at the contractor’s expense. In other cases, the utility charges the contractor to provide the OQ training. Utilities may schedule the contractor’s OQ training at the best time for the utility only, taking away a key efficiency of the contractor – the ability to schedule its work force. When there are hidden costs to the contractor like this, it may even hurt safety and quality if production becomes the primary driver. This short-term sacrifice of safety and quality will end up costing the utility customer more money in the long term.
Now, let us consider contractor selection governed by the “best total-value model.” There are utility companies which are exceptions to the general rule in that they specifically seek and select contractors that have a culture of safety, quality, production, and customer satisfaction. These are the contractors that do not require others to spend inordinate amounts of time overseeing their business. They know their business. These are the contractors who provide the best total value.
Utilities can go a long way toward identifying the “best total-value” contractors by designing pre-qualification standards that ensure that bidders are already conforming to a culture of safety, quality, production and customer satisfaction and can demonstrate this to the customer. This demonstration will include documentation of sufficient insurance coverage, quality equipment, claims management systems and many others. Contractors awarded the work must be well-versed on regulations including 49 CFR 191, 192, 193, 199 and part 40; and OSHA 1926.
They must understand how these regulations drive the construction and O&M plans on which the utilities’ systems are built and maintained. These contractors must be familiar with OSHA standards – not just shoring requirements, but the handling of confined space, asbestos-wrapped pipe and natural asbestos occurring in the ground, PCBs, mercury and other environmentally sensitive material.
The contractor needs an effective fleet safety program dealing with commercial driver’s licenses (CDLs) and all requirements of the Federal Motor Carrier Safety Regulation Parts 382 through 399. The contractor must have a culture of safety, quality, productivity and customer satisfaction.
Why Not The Best?
Some utilities have programs in place that ensure the selection of only the best total-value contractors. These programs have three additional processes in common: a high-level presentation at the utility by the candidate contractor, utility team visit to the candidate’s facilities and a rigorous scoring of candidate contractors by the utility on all factors important to the utility.
The utility requires the contractor to give a presentation to a group of staff, normally high-level executives from the utility’s operations, construction, contract administration, safety, regulatory affairs, environmental, risk management, accounting and, in many cases, information services, areas. This presentation enables the utility to objectively evaluate the contractor’s management team that will oversee the project via questions and answers on submitted material. This also allows the contractor to bring up any special processes or programs – like policies that address cross bores (one of the most pressing hazards facing our industry) – to the attention of the utility.
The presentation allows the contractor to demonstrate its ability to perform with quality. Furthermore, it eliminates the utility’s requesting copies of programs and safety plans that only one group within the utility – or a third-party administrator – will ever see. Most of the process focuses on the ability of the contractor to satisfy the requirements of the utility and deliver best total value.
The second step involves the utility sending a team to visit the contractor. The visit includes a trip to the corporate office to ensure that the submitted information is correct and to get a feel for the contractor. The team makes sure the contractor can comply with any system compatibility requirements including the utility’s work-management systems. The team evaluates how safety and quality are managed in detail and by whom, how claims are handled, how the contractor handles the risk of cross bores with sewer laterals.
This team also includes a field visit to one of the contractor’s operations facilities and several job sites to ensure that equipment safety and the quality of equipment maintenance is satisfactory. For example, is all fusion equipment inspected, tested and maintained as required? Are all pressure gauges maintained as required? Are inspection programs in place for crane booms and the required certifications met? In summary, can and will the contractor perform at the level of service that the utility requires and desires, minimizing the utility’s need to spend time and money overseeing the contractor, and will the contractor help the utility reduce its total costs?
In addition to evaluating the contractor’s culture, the process allows for open discussion regarding mutually beneficial topics such as contract language that addresses key items like indemnification language, legal worker language and adequate insurance requirements.
Scoring is the third key step. After the utility completes the pre-bid process and the bids are submitted, contractors are evaluated by assigning each a score using a matrix of desired factors and their relative importance, as determined by the utility. The utility uses this weighting system to rate the bids and arrive at the best total-value contractor.
Audit The Contractor
Once the best total-value contractor is selected, the utility maintains a regularly scheduled audit process that reviews performance and ensures compliance. This is integrated with the contractor’s own audit process to achieve best total value. Most of the audits cover quality of construction and compliance with construction standards. These audits are not just expensive job-site inspections; they are part of a true audit process to ensure that the contractor is performing at a level that provides a safe, quality installation.
Generally, the utility has a meeting to share the quarterly results. However, if at any time the contractor falls below the target level, the utility immediately calls a meeting to advise the contractor that the contract could be terminated if there is no acceptable plan to correct the deficiencies.
The successful contractor works with the utility to lower total costs. Meetings between the contractor and the utility address contractual agreements and best total-cost practices. These meetings help establish a safety and quality culture of best cost by having both parties working together (vs. independently or against one another) to identify initiatives or best practices that can reduce or eliminate costs from the overall construction process. In addition to a collaborative, efficient audit process, some of the safety and quality initiatives or best practices that can also best be addressed collaboratively are:
- Utilization of resources,
- Integrated claims management,
- OQ requirements,
- OSHA requirements,
- Changing and following construction standards, policies and procedures,
- Relationships with governmental agencies and municipalities,
- Paperwork completion,
- Meeting the expectations of the utility’s customers,
- Clean-up procedures,
- Relative experience and expertise of the management teams, and
- Unique construction practices that increase productivity and enhance quality.
To ensure the success of these meetings, both parties need to be able to trust one another, share information and have open and honest communication. Issues need to be raised, action plans established, and measurements put in place to document the results of obtaining best total-cost solutions. The best total-value selection model will have identified the contractor with the right experience and values to deliver best total cost (Figure 2).
Figure 2: Best Total-Value Selection Model.
In the area of safety, the contractor either has a commitment to safety or not. The utility will find it difficult, if not impossible, to change a contractor’s safety culture. A commitment to safety by the contractor is reflected daily in all areas of its operations, much of which the utility seldom sees. The key to obtaining best total value is to invest up front in selecting the right contractor and minimize utility management costs thereafter.
Quality is what the contractor leaves behind for the utility and its customers. Quality and compliance with the customer’s construction standards, federal and state pipeline safety regulations, local permit and environmental regulations and other state and local requirements are the keys to ensuring public safety and best total cost.
Lack of compliance is the highest cost to both the customer and the contractor. For example, an employee who fails to prepare a proper fusion or a weld risks major costs to both the contractor and the utility, since going back to repair a deficiency often results in excess costs and poor public relations for the customer. If a bad fusion is not caught and an incident/accident occurs, then a major general liability claim could occur. This is a major cause of escalating insurance and construction costs. Ensuring that the contractor has and maintains an effective quality-management program that lowers risk is the best way to lower incidents, increase public safety and manage costs.
Best-value contractors have the systems, measurements and the review (audit) processes in place to reduce quality issues and lower risk. These contractors have established their own quality systems which include in-house audit programs and a corporate office review, combined with the ability to provide the largest amount of insurance coverage to cover the customer. Every dollar of insurance coverage the contractor provides is a dollar of coverage the utility does not need in case of an incident.
The contractor either has a commitment to quality or not. The utility will find it difficult, if not impossible, to change a contractor’s quality culture. The key to obtaining best total value is to invest up front in selecting the right contractor and minimize utility-management costs thereafter.
This article is based on a presentation at the American Gas Association Operations Conference & Exhibition, Pittsburgh, PA, May 19-21, 2009.
Dan Weaklend has spent more than 25 years in pipeline safety, regulatory affairs and operations positions. He has been NPL’s chief officer for safety, quality and regulatory affairs for the past nine years. He previously served as Chief of Pipeline Safety for the Arizona Corporation Commission, holds contractor’s licenses in four states and belongs to several pipeline-related professional organizations. He can be reached at firstname.lastname@example.org.