Contractors and contingent workers are central to business strategy. In the U.S. construction industry alone, contractors represent a major portion of the workforce. As of January 2025, construction employment reached 8.29 million, and the sector is expected to need 439,000 net new workers this year to keep pace with demand (source).
This reliance on contractors is not unique to construction. From IT to healthcare to manufacturing, organizations are turning to non-permanent staff for the flexibility and expertise that full-time employees alone cannot provide.
But managing a growing contractor workforce is no easy task. Organizations must balance compliance, cost control, and productivity while ensuring projects stay on track. Traditional methods (manual spreadsheets, email approvals, and siloed vendor contracts) are simply not enough. That’s where a vendor management system (VMS) comes in. By acting as sophisticated contractor tracking software and enabling streamlined contractor management services, a VMS helps organizations manage contractors more effectively, whether they are under contract for a defined project or part of a broader contingent workforce strategy.
The Rising Reliance on Contractors
Contractors are no longer hired solely to plug temporary gaps. Increasingly, they provide specialized skills and allow businesses to scale quickly without the long-term financial commitment of full-time hires. In construction, the reliance is obvious: general contractors coordinate multiple subcontractors on a single project, from electricians and plumbers to safety specialists. Without a centralized system, visibility into contracts, timelines, and compliance quickly breaks down, creating delays and cost overruns.
In technology, the story looks different but follows the same pattern. A financial services firm developing a new mobile app may bring in cybersecurity contractors for a six-month sprint. These workers are under contract, not permanent employees, but their expertise is critical to success. Whether in construction or tech, the same challenge exists: without effective management tools, organizations struggle to balance the distinction between workers who are under contract vs. contingent, often leading to confusion, compliance risks, and missed opportunities.
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The Role of VMS in Contractor Management
A vendor management system is designed to provide transparency and control over external workers. In the context of contractors, it centralizes contracts, automates workflows, and creates a single source of truth for compliance, time tracking, and costs.
Imagine a mid-sized construction company managing ten different projects across three states. Each project has dozens of subcontractors, all with unique agreements, insurance requirements, and deadlines. Using manual methods, it’s nearly impossible to ensure every contractor has up-to-date safety certifications or that invoices align with the work performed. With a VMS functioning as contractor tracking software, the company can monitor compliance in real time, flag expired certifications automatically, and generate reports that show not just costs but also productivity by vendor.
Similarly, a global manufacturer may rely on contractors for equipment installation across new plants. With a VMS, the company gains visibility into which contractors are meeting deadlines, which are over budget, and where additional resources may be needed. What was once reactive management becomes a proactive strategy supported by data.
Strategic Benefits of Managing Contractors Through VMS
Managing contractors effectively is about more than streamlining paperwork: it’s about turning a complex, fragmented workforce into a strategic advantage. A vendor management system provides organizations with benefits that go well beyond efficiency:
- Cost Control and Savings: A VMS helps standardize rates across projects and vendors, reducing hidden costs that often arise when managers negotiate independently. For example, a construction firm that previously paid varying rates for similar roles across different projects could use VMS data to renegotiate contracts and achieve a reduction in labor costs in the first year.
- Compliance and Risk Mitigation: Contractors often work in high-risk environments, from construction sites to healthcare IT systems. A VMS automatically tracks certifications, licenses, and insurance documents, ensuring no contractor sets foot on a site without meeting regulatory requirements. This reduces legal exposure and helps avoid costly project delays.
- Improved Workforce Visibility: Leadership gains a single source of truth for all contractors, whether they are under contract for a fixed project or part of a contingent workforce. A mid-sized manufacturer, for instance, used its VMS to map out where every contractor was deployed across multiple plants, revealing redundancies and allowing smarter allocation of resources.
- Faster Onboarding and Project Readiness: Time lost during onboarding can derail critical projects. A hospital group implementing a new electronic records system used its VMS to pre-verify contractor credentials, reducing onboarding times from weeks to just days. This ensured projects started on schedule without sacrificing compliance.
- Performance Measurement and Vendor Accountability: With all data centralized, organizations can track which vendors deliver quality work on time and which fall short. Over time, this performance data creates leverage in negotiations and allows companies to build stronger, more reliable vendor relationships.
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Contractors as a Strategic Workforce
Under Contract vs contingent Workforce
The distinction between contractors “under contract” for a specific project and a broader contingent workforce is becoming increasingly blurred. In many organizations, both groups play mission-critical roles. The challenge is not just hiring contractors, but managing them effectively as part of a holistic workforce strategy.
This is why the future of contractor management lies in technology. A VMS transforms contractors from a fragmented group of external workers into a visible, trackable, and strategically aligned workforce. It allows leaders to answer critical questions: How many contractors are working for us today? At what cost? Are they compliant with regulations? Are they delivering value relative to full-time employees?
For industries like construction, where demand far outpaces the available labor pipeline, the ability to manage contractors efficiently may be the difference between projects completed on time and projects stalled indefinitely.
Looking Ahead
Contractors are here to stay, and their role is growing across industries. The construction sector highlights the urgency, with millions of workers already employed and nearly half a million more needed in 2025. But the challenge of managing contractors effectively extends far beyond construction. From technology to healthcare, organizations that rely on contractors must ensure compliance, cost control, and performance visibility.
A vendor management system delivers the tools needed to do just that. Acting as both contractor tracking software and a hub for contractor management services, a VMS turns contractor oversight into a strategic advantage. In a market where talent shortages are real and timelines are tight, the organizations that embrace VMS will be the ones best equipped to succeed.
