Contractor Risk Management is the process of identifying, assessing, and controlling risks associated with an organisation’s use of contractors. It is pertinent for larger organisations to ensure they have robust systems and processes in place to address contractor risk as their operations often rely heavily on contractors for the delivery of critical services.


Why is it important to manage contractor risk?

The importance of contractor risk management lies in the potential risks that contractors bring to an organisation. To manage contractor risk effectively, organisations must first identify the risks associated with each contractor. This can vary greatly depending on the nature of the activities and agreed scope of works. Once identified, the organisation must then assess the potential impact of each risk on the business.


What areas of risk does the use of contractors introduce?

The use of contractors can bring a variety of risks to an organisation. By effectively managing these risks, organisations can reduce the potential consequences and ensure that their operations run smoothly. It is essential for organisations that rely heavily on contractors to implement a comprehensive contractor risk management program. Some of the key areas of risk involved include:


Contractors may have different policies and procedures, which conflict with your own, or can result in non-compliance with certain laws and regulations.

Expertise & Experience

Contractors may not have the same level of expertise or experience as in-house employees, especially within the context of the organisation, which can lead to errors and mistakes.


Bringing on contractors may involve providing access to sensitive information and assets, that may pose a security risk to the client organisation.


The actions of contractors can have impacts on the reputation of their clients, and any negative publicity has the potential to damage their brand.


Contractors may cause harm or damage to third parties, leading to legal liabilities for the organisation.

Quality of Work

The quality of work delivered by contractors may not meet the standards expected by the organisation, leading to rework and additional costs.

Schedules & Deadlines

Contractors may not meet project timelines, which can delay completion and impact the organisation’s operations.


The cost of using contractors may be higher than expected as a result of additional expenses such as overheads, scope creep, insurances, and taxes.


Contractors may not work effectively with in-house employees, leading to communication breakdowns and difficulties integrating their work into the organisation’s processes.


Managing Contractor Risk

Once the risks have been assessed, the organisation must take steps to control and mitigate the risks. This may involve implementing contractual clauses, such as security requirements and insurance requirements, to ensure that contractors are held accountable for their actions.

Contractor Prequalification is an important component of contractor risk management, and includes assessing the contractor’s qualifications, insurances, experience, and safety procedures. This provides confidence in a contractor’s suitability for the job.

Depending on the level of risk, the organisation should also review the contractor’s past performance and any issues that have arisen during previous contracts. The client may also implement additional processes and procedures, such as background checks, security clearances, and periodic audits, to ensure that contractors are following the correct procedures and complying with all laws and regulations.

In addition to controlling and mitigating risks, organisations must also continuously monitor and review performance. This involves regularly reviewing their performance, conducting audits, and verifying that the contractors are following the agreed-upon processes and procedures.

Read more: The Contractor Management Process

Continued Support & Resourcing

It is important to note that contractor risk management is an ongoing process. As contractors change, the risks associated with them may change as well. Organisations must continuously review and assess the risks associated with contractors and take the necessary steps to control and mitigate those risks.

Finally, it is important for organisations to provide training and support to their employees to help them understand the importance of contractor risk management. Employees should be trained on how to identify risks, assess their impact, and implement effective control and mitigation measures.

All of this activity requires resourcing to ensure effectiveness and completeness. Cm3 understands it is not always within the reach of every organisation to resource these functions as fully as they would like to. Through its dedicated Compliance Team, Cm3 can provide managed solutions and support to enable your business to achieve what might otherwise be deprioritised due to lack of internal capacity or capability.


How does contractor management software help manage these risks?

Using digital solutions, such as Cm3, to manage contractor risks provides a more efficient, accurate, and cost-effective approach to managing and organisation’s risks associated with their use of contractors. Used well, they have the potential to greatly minimise risks and ensure that an organisation’s operations run smoothly, while complying with applicable laws and regulations. The reasons why it is important to use digital solutions to manage contractor risks include:


Digital solutions can automate many manual processes, such as contractor onboarding, risk assessments, and performance evaluations, making the risk management process faster and more efficient.


Digital solutions can provide a centralised database of contractor information, allowing organisations to access accurate and up-to-date information, reducing the risk of errors and omissions.

Monitoring & Reporting

Digital solutions can provide real-time monitoring and reporting capabilities, allowing organisations to quickly identify and respond to potential risks, reducing the potential consequences.


Digital solutions can facilitate collaboration between multiple departments, allowing organisations to effectively manage risks associated with contractors and improve communication between stakeholders.


Digital solutions can scale to meet the needs of organisations of any size, making them suitable for organisations of all sizes, from small businesses to large corporations.


Digital solutions can help organisations comply with laws and regulations, such as data privacy laws and security requirements, by automating processes and providing real-time monitoring and reporting capabilities.


Digital solutions can reduce the cost of managing contractor risks, as they automate many manual processes and reduce the need for paper-based systems and manual processes.


What makes Cm3 different?

Cm3 is unique in its employment of a sizable compliance team consisting of highly qualified Assessors with considerable operational experience across virtually all industries. This team conducts Cm3’s prequalification assessments based on the work a contractor may do for a client.