Contractor Qualification and Evaluation

1. Contractor Qualification and Evaluation May 8, 2001

2. Why Should Contractors be Evaluated? • OSHA Requires it • Process Safety Management • Community Relations • Responsible Care (CMA) • ISO • US/Government (i.e. minority groups) • Have a safe facility

3. Who Must Perform Evaluations? • Any owner hiring contractors to work in facilities covered by PSM must evaluate the contractors prior to entering the site. • Owners must also evaluate contractors periodically after work has been done.

4. The Evaluation Process Contains… • Know what to ask • research requirements, best practices • Ask the questions • develop a questionnaire, send out, collect responses • Evaluate the responses • review and qualify/disqualify your contractors • File and manage the results • Maintain records of the evaluations for inspections • Evaluate the contractor performance • After work is complete, review performance and maintain records

5. The Current Business Model is Slow and Costly • It is very people intensive for both the owner and the contractor • All information is collected and transmitted on paper which makes information retrieval slow • Files and records retention are done manually • Results: • Many companies either don’t evaluate contractors or don’t do it properly • The process becomes an administrative chore instead of a strategic advantage

6. The Risks of Not Evaluating Contractors Can Be Significant • Potential OSHA fines • Increased risk of unsafe behavior in plant • Jeopardize the relationship with the community • Increased cost of operations (i.e. workers compensation rates) • Increased labor relations issues

7. A Better Business Model Exists: “e-business” • Through the internet, “e-business” models allow certain types of business to be conducted better, faster and cheaper • Economies of scale can be reached with “e-business” that could not be reached before • All information is electronic which allows it to be transmitted and evaluated faster and more accurately • Companies have access to more and better information

8. “e-business”What is it? • It is the transformation of business processes through internet technologies • Purchasing, Sales, Distribution, R&D, etc • It is a transformation of people and culture to begin using internet technologies • It is the transformation of information from paper to electronic

9. “e-business” Trends • Percentage of Companies adopting e-procurement technology doubled from 1999 to 2000 • Percentage of Buyers with access to the Internet at work goes from 22% in 1995 to 94% in 2000 • The percentage of Buyers that use the Internet for transactions was 68% in 2000 • 87% of buyers used the Internet in their jobs in 2000

10. The Contractor Evaluation Process Can Use the “e-business” model • Evaluation requirements and questions can be researched centrally for all owners • Evaluation data can be collected electronically in a central database • Owner evaluations (pre and post work) can be done on-line electronically and the records maintained automatically • Data availability can be immediate through a single, virtual, file cabinet • The process becomes automated

11. The “e-business” Model Has Many Benefits • There will be a significant cost reduction in the overall process due to economies of scale • The quality of information will increase • Better tools will be available for analysis • Purchasing can focus more time on contractor selection where strategic value can be gained • The work-load on already over-burdened purchasing and safety organizations will decrease

12. An Illustrative Example of Today’s Model • In the current business model, every company is performing virtually the same task. • If done properly the task can be time consuming and costly • Meeting these requirements is necessary, but not core to most businesses • Contractor / Supplier A • Answers Requests • Prepares information • Respond to each company • Company A • Research regulations • Interpret regulations • Collect information • Manage information • Update information • Manage contractors/ suppliers • Company B • Research regulations • Interpret regulations • Collect information • Manage information • Update information • Manage contractors/ suppliers • Company C • Research regulations • Interpret regulations • Collect information • Manage information • Update information • Manage contractors/ suppliers

13. An Illustrative Example of an “e-business” Model • 3rd Party Service Provider • Provides services for all owners and contractors • Research regulations • Interpret regulations • Collect information from suppliers/ contractors • Manage information • Update information • Organizes information • Provides information to owners • Provides tools fro qualifying contractors / suppliers • Information is stored in databases, available through the internet • Maintains historical records • Contractor / Supplier A • Supplies data Once Company A Manages suppliers and contractors Company B Manages suppliers and contractors Company B Manages suppliers and contractors

14. Example Effort Reductions • Assume an industrial region with 25 owners, and each owner uses 100 contractors. Additionally there is a 25% overlap of contractors between any two owners with the net overlap increasing as the number of owners increases. Let’s call the work involved in doing an evaluation X. • In a traditional model, each owner would have to evaluate each contractor: 100X per owner • Using an e-business model reduces the effort as the numbers of owners increases: • 2 owners: 75X + 25X + 75X = 175X / 2 = 87.5X per owner • 5 owners: 5 * 60X + 40X = 340X / 5 = 68X per owner • 10 owners: 10 * 50X + 50X = 550X/ 10 = 55X per owner • 25 owners: 25 * 25X + 75X = 700X/ 25 = 28X per owner

15. V-Purchasing.com Uses the “e-business” Model to Provide Evaluation Services

16. V-Purchasing Systems Demonstration • Live Demonstration • Questions