Essential Steps for Contractors to Improve Subcontractor Prequalification
Contractors can lose millions of dollars if a subcontractor defaults on a large construction project. That is why is it important that a contractor has an effective prequalification process in place; they are less likely to run into issues if they take the time to efficiently evaluate if a sub is qualified for the job. In a recent sit down with Bill Lane, Lead Risk Manager at Hudson Insurance Group, we gained insights on how contractors can improve their subcontractor prequalification process. He suggests that contractors should:
- Implement
a Financial and Operational Assessment,
- Add
Prequalification Data into the Bid-Leveling Form, and
- Use
Technology as a Tool, Not a Solution
When
choosing which subcontractor to use for a project, it is imperative that a
contractor assess the company’s current and historical financials as well as their
operational capabilities. There is a whole list of fiscal data that can be used
to evaluate a subcontractor’s financial health. This ranges from tax returns
and balance sheets to a subcontractor’s surety capacity. Bill Lane states that a
contractor should “get a temperature check on if the subcontractor is
financially healthy,” so they can see if the subcontractor will be able to
deliver on the project they are being considered for. Implementing a financial
assessment is easier to do when compared to evaluating a company’s operational
capacity. This is because the financial side of things is much more defined and
metrically based, making it easier to arrive at a single and aggregate limit of
award.
When looking at a subs operational
function, a contractor should ask the following questions: What is their
largest past project? What is their average project size? What other work do
they have to bid right now? Do they have the right management staff? Are they
good with submittals? Are they good with schedules? And are they good at getting
payment applications in on-time? By asking these questions, a contractor will
get a better feel for a subcontractor’s operational capacity. If the answer to
most of these questions is “no,” then a contractor will know not to choose that
subcontractor for the project as they will most likely fail to deliver operationally.
Assessing a subcontractor’s financial and operational competency is a key part
of the subcontractor prequalification process and can effectively display if a
subcontractor is fit for a specific project or not.
Add Prequalification Data into the Bid-Leveling Form
The Bid-Leveling
Form, also known as the Bid Tabulation Sheet, lists all the vendors who submit
a proposal to work on a project. A contractor uses this form to organize all
the information gathered on each vendor, helping them decide on which
subcontractor is best fit for the project. By including prequalification data
on the Bid-Leveling Form, a contractor will have an easier time picking out the
sub most likely to drive success. Bill states that the prequalification data is
the “lowest hanging fruit,” and “it might visibly drive some different
decision-making” if included on the Bid Tabulation sheet. A contractor could clearly
see if a vendor is a known commodity and if they are in a better financial and
operational position compared to other bidders. By adding prequalification data
into the Bid-Leveling Form, a contractor is creating visible transparency into
the prequal process, allowing them to pick the vendor who is best-fit for the
project, not just the lowest bidder.
Use Technology as a Tool, Not a Solution
Even though technology has improved and evolved significantly over the years, it still contains blind spots. According to Bill, “contractors are pre-qualifying better than ever” as the amount of technology being used is making the process more efficient and effective. For example, nearly 20 years ago, fax machines were used as the main source of technology for the prequalification process. Today, the industry can rely on intricate and customizable software suites to help support their bid management and prequalification processes and practices, allowing the process to move at a much more rapid pace. Even though technology today is incredibly advanced, Bill states that “technology is a tool, not a solution.” Contractors should not rely on technology to solve 100% of their problems as deficiencies still exist. If these blind spots are not caught in time, bigger and more challenging problems may arise.
If you are a contractor, Bill suggests you make sure to efficiently go through your prequalification process as it could save you millions down the road. Additionally – continue to qualify throughout the lifecycle of your subs performance as marketplace position changes constantly during the execution of projects (especially with high-risk or critical path trades!). By assessing a subcontractors financial and operational capacity and including them on the Bid-Leveling Sheet, you are bound to see an improvement in your prequal process. If you want to learn more from Bill regarding enhancing subcontractor prequalification, listen to our Podcast with Bill Lane, Essential Steps for Contractors to Improve Subcontractor Prequalification.
Links:
Connect with Bill on LinkedIn
Follow Hudson Insurance Group on LinkedIn
Visit Hudson Insurance Group on the web here
Email Bill at WLane@hudsoninsgroup.com
Connect with Peter Duggan
Connect with Mike Diercksen
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