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Navigating Subcontractor Risk in Supply Chain Networks (Part One)
- Organizational Risk: Without an integrated systems approach, cybersecurity, health and safety, and business risks originating with a subcontractor can impact the client. Such risks multiply across the client organization and can even spread to partnerships across the supply chain network.
Challenges for Prime Contractors
Prime contractors require the same degree of insulation from financial risk and project disruptions as hiring clients. If primes do not prequalify subcontractors and remain accountable to their clients, they will be unable to protect themselves.
Major challenges for prime contractors include:
- Prequalifying Subcontractors: Difficulty in identifying responsible subcontractors makes it challenging to fulfill contracts and distribute liability properly.
- Lack of Technology: Many prime contractors lack technology to streamline subcontractor risk management. Without integrated tech support, communication lags and issues are more challenging to manage.
- Meeting Client Standards: Prime contractors often struggle to understand and implement client standards. This is exacerbated by the fact that clear channels of communication between the layers of clients and subcontractors usually do not exist.
Challenges for Subcontractors
Subcontractors do not have direct access to clients and may feel less accountable due to the lack of visibility. They may not meet high compliance standards, or even know what they are, due to signal attenuation.
Major challenges for subcontractors include:
- Lack of Supervision: Insufficient oversight from prime contractors and lack of access to the resources needed to problem solve and manage changes.
- Accountability Issues: Not adhering to standards can lead to health and safety risks, rework, and lost contracts.
- Lack of Technology: Without integrated tech support, communication lags and issues are harder to manage.
Conclusion
Clients, prime contractors, and subcontractors share the responsibility for a strong, efficient supply chain network. Managing subcontractor risks is crucial for everyone's success and stability, as each node in the network has both a part to play and something to be gained. That said, clients play a central role in setting and communicating clear expectations for their contractors and subcontractors to ensure each level of their supply chain adopts responsible practices and answers for them. Successful and sustainable outcomes are the goal for everyone involved. Using modern supplier risk management tools and clear communication strategies makes this possible.
About the Author
Avetta is a SaaS software company that provides supply chain risk management solutions. Its platform is trusted by over 130,000 suppliers in over 120 countries. Visit Avetta.com to learn more about its subcontractor management tools, prequalification services, and marketplace offerings.