The key to having a clear overview of your contractors compliance, is to use metrics to test each of your subcontractors against, on an ongoing basis. The metric is simply what you are trying to measure, for example, is the contractor insured or not? By using a metric with a yes or no, we can now measure many contractors at the same time against a pre-set list of questions or ‘metrics’. This is what we call a metric-driven approach to compliance.

A metric driven approach is about measuring each individual subcontractor against a set of questions to better understand their compliance. Only then can you say with confidence, yes all my contractors meet their compliance requirements.

What is a Metric Driven Approach?

In a metric driven approach, we are identifying all the different aspects that go into a subcontracting relationship and breaking them down into individual steps. By doing so, we remove the confusion that often comes from trying to answer a question like “are your contractors compliant?”. It is unlikely you are going to be able to answer a question like that off the cuff, but a question like “does your contractor have a public liability insurance certificate?” is far easier to answer.

The result of addressing each individual question is that you will get a great high level overview of where your compliance is tracking with each individual subcontractor. Taking this approach does three very powerful things:

1. Forces you to collect the physical documentation you need to show proof of compliance.
2. Identifies gaps in your documentation that you may not be aware of.
3. Highlights your greatest weaknesses for achieving compliance.

Taking a metric driven approach will save you enormous amounts of time and money by focusing on what you can improve internally before engaging specialist professionals to assess your business.

The best way to think of a metric driven approach is as a heat gauge, with each metric providing a notch on your gauge that will give you a single point of reference to review your subcontractor relationships.

22 Compliance Metrics

Subcontracting comes in all shapes and sizes which makes it difficult to address compliance when there are so many moving pieces. To overcome this challenge we have developed a set of questions or metrics that can be applied to any contracting scenario.

Our metrics are based on legal principles that have been used in previous decisions by the courts to determine the nature of a contracting relationship (it’s called the ‘common law’). Almost all pieces of legislation contain one or more description based on these common law principles and they form the basis for which many laws have been built from.

After reading countless court decisions, we have distilled down a set of 22 metrics that can be used to measure the compliance of a contracting relationship. These metrics are not exhaustive, as the list of tests used by the courts over time would be far too overwhelming. However, this set of 22 metrics is the most comprehensive set of tests we have come across in the Australian landscape.

Some of these metrics are very simple, such as what is the structure of the business you are engaging, others such as safety, are more complex. In each metric, you are trying to gauge what you have documented, what the reality of the engagement is and where responsibility lies if something goes wrong.

Evidence is King

Because we use such a comprehensive set of metrics, we get to paint a vivid picture of the relationship you have with the worker you are engaging. A key point of using these metrics as a measurement tool, is that you must be able to prove your answer to each metric with physical evidence. I can’t tell you how many times I have asked a business owner if the subcontractor has their own insurance, the answer is normally always yes. When I ask can I see a copy of their certificate of currency that details their insurance, there are a lot less people that I would fit into the yes category.

Evidence comes in many forms and may be simpler than you think to collect. The primary goal here is to be able to support your answers with physical evidence of some description. Not all evidence is created equal and the act of having to produce documentation will allow you to review the quality of the evidence that you can produce for any given aspect of the relationship.

Applying the Metrics to Legislation

In Australia, there is a long list of legislation that affects subcontracting such as tax law, superannuation law, work, health and safety laws, workers compensation and much more. Each of these laws can be applied to contracting arrangement and each law needs to be followed with strict compliance.

Metric number 22 is ‘Statutory Entitlements’, that metric is specifically drawing your attention to the fact that these metrics need to be applied to each individual piece of legislation. The beautiful part of measuring compliance using these metrics is that if you have done the work to put them together, they can be applied largely as they are to each piece of legislation. Similarly, if you have all your documentation in place covering these 22 metrics, you will save a lot of time and money taking your situation to a legal professional to provide advice on whether you are meeting your obligations.

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Typically financial incentives are the go-to carrot to keep subcontractors engaged and motivated  to work efficiently. While financial incentives are absolutely important, they shouldn’t be relied upon until you have set the stage and laid the foundations for a highly efficient and productive environment.

Know who you’re dealing with

Sounds like a no-brainer right? Well, this is the first and probably most overlooked lever you can pull to improve the motivation for subcontractors. Getting to know the subbies that you hire is a double-edged sword that can both positively affect motivation or negatively affect your decision to hire. Both are good in the long-run for the project.

Firstly, motivation is incredibly subjective and is dictated by each individual persons needs and desires. Therefore, what is going to motivate one person might not motivate another person at all. The big trick is to understand a subbie well enough to know what their higher goals are. If you can then tailor your engagement to help them achieve their goals you will have a far more motivated subbie on your hands.

On the flip side, if in the process of getting to know a subbie you may come across some red flags in the way they perform their job. In that scenario you can pull the plug and save everyone the drama of a job going bad.

Creating goals and milestones

Breaking a job down into incremental steps and milestones is common practice in many contracting relationships. However, a milestone or a long to-do list can actually become counter-productive and have a negative effect on the motivation of a sub-contractor. It reduces the ability for the contractor to step back and look at the big picture while also creating stress and anxiety with the amount of work to get done.

A goal on the other hand provides a tangible challenge that a contractor will strive to achieve and create ongoing motivation. The goals need to have the contractor’s buy-in and they need to follow the SMART principle (Specific, Measurable, Achievable, Realistic and Time-bound).

People are naturally motivated by a challenge and by structuring your jobs as a series of smart goals rather then a long to-do list, you will see shifts in the motivation of the contractors performing the job. A mechanism to monitor the performance of the contractor and celebrate the goals achieved creates positive reinforcement and will lead to better outcomes.

Keep communication easy and open

Communication is a two-way street, and your method of communicating may not align with the communication method of the sub-contractor. Mismatches in the type of communication e.g. spoken, email, SMS and the timeliness of communication e.g. once a day or once a week are the most common causes of a breakdown in communication.

In a fast-paced working environment having clear, open and easy communication between you and the contractor is critical. Simple and regular check-in’s will allow you to keep your finger on the pulse and quickly react to changes or issues before they become a real problem. It is also just as important to make yourself or someone in the organisation present and available to receive and respond to contractor requests promptly.

Set the expectations from the start

Given that contractors are typically only around for short periods of time and run their own businesses it’s often seen as un-important to bring them up to speed on your organisations values, habits and ways of operating. As a result contractors often lack an understanding of the entirety of a job or being able to integrate effectively with the business they are working with. They may quickly fall back into habits or methods that don’t align with your expectations on the job.

Having clear expectations on the quality of work, communication frequency, safety standards, time-frames and scopes will eliminate the chances of mis-interpretations that cost time and money. Expectations should be simple and structured and need to have the acceptance or buy-in from the contractor to be effective.

Make sure the deliverables are clear in the contract

Contracts are often passed off as excessive paperwork in small businesses that don’t have the luxury of a contracts administrator and even in some that do. However, the contract is an essential tool in expressing the deliverables of a job, the scope of the works and can link up non-traditional aspects like goals and expectations.

It is also important from a performance and productivity perspective that the contractor accepts and takes on a level of risk in relation to the job. The risk involved will in itself motivate a contractor to work efficiently, reduce costs and ensure the quality of the workmanship they are providing.

Similarly, if things don’t go to plan, it is the contract that you will need to fall back on to ensure contractors meet their side of the bargain and complete works to the necessary standards.

The biggest conflicts in contractor management can almost always be traced back to a deficiency in the contract itself.

Avoid micromanaging the contractor

There are certain elements of a job that will actually de-motivate a contractor in the course of completing a job. These factors are often a result of your relationship with the contractor and come from things like poor work environments, over-instruction, excessive changes to details of the job and poor payment timeframes.

A contractor is paid to come in as a professional and complete a particular job to the standards agreed. Your job is to ensure that your are creating the right environment for them to succeed and then letting them use their expertise to get the best job done.

Linking incentives and rewards to outcomes

Incentives and rewards is a topic in itself and there are many varieties and combinations of rewards that can be used. The most obvious incentive is financial and often comes in the form of lump sum payments or cost-plus contracts. Progress payments are also frequently used to keep the wheels moving on longer jobs.

The motivational driver behind financial rewards is clear, however simple changes to the structure and payment of financial rewards can make a big impact. For instance, what if instead of paying a progress payment out each month as is the norm, we link progress payments to incremental goals and milestones? The difference here is that rather than simply ticking boxes throughout the month, the contractor is motivated to hit their targets more efficiently and productively as the reward is linked to a set objective instead.

Thinking of rewards outside of the traditional financial payments can yield great results as well. Things like a subbie of the month trophy or a BBQ lunch on a Friday can help boost the morale and overall motivation of a contracted workforce.

Everyone is different and will respond differently to incentives, the trick is to find out what makes your contractors tick and structure incentives and rewards that will bring out their best.

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