General contractors are usually choosy and picky in terms of working with subcontractors. They just can’t work with every kind of them due to various limitations and factors. They all want to work with dependable companies having a skilled, dependable, and honest workforce, with strong management, financial stability, and a knack for quality work.
This is why they need to have an already established prequalification process for subcontractors in place.
Like most business decisions, picking subcontractors to work with is a process that requires companies to conduct their due diligence. They should be prequalifying each subcontractor in the list they consider working with. This helps reduce risks that can hurt the business, especially if the subcontractor provides bad work or defaults on finances.
There could be a probability that the construction company has a list of stable subcontractors they have worked with routinely in the past. However, if companies decide to take a project in another state or territory, then the situation becomes complicated for them.
At one point or another, they will end up working with a subcontractor with whom they have no experience at all and may face issues. Prequalifying subcontractors before working with them counts a lot. It helps check which subcontractor bids can lead to a partnership that mutually benefits both the company and the subcontractor leading to a solid long-term partnership.
Prequalifying subcontractors before construction companies solicit pricing or subcontractor bids can create partnerships that are mutually beneficial for a long time to come.
Key tips involved in prequalifying subcontractors
Here are some key tips and information construction companies need to obtain when they conduct prequalification for subcontractors:
Obtaining general information
Obtaining basic information information like company ownership, number of employees working for them, management, and states plus territories where they have their contractor licenses. The company also needs to find out the size of the subcontractor plus the scope of the projects they’ve worked on.
Examining their safety records
The Office for Health and Safety Administration (OSHA) recommends each construction company and contractor obtain the subcontractor’s OSHA 300 information. They should also determine check whether or not the subcontractor was issued any citations. Their Experience Modification Rate for the past few years should also be determined.
The construction company can also check about any training programs the subcontractors attended and whether or not they have held regular safety meetings or not.
What is their capacity for bonding and surety?
Construction companies should determine the current surety provider plus the agent’s name and contact information of them too. They should also not forget to ask about their bond rates, especially for specific volumes. They must also ask about their single-project bonding capacity as well as their aggregate bonding capacity.
What is the subcontractor’s financial standing and status?
Construction companies must determine whether or not the subcontractor ever filed for bankruptcy. They should also ask for the Dun & Bradstreet number (if they have one). They can also ask for the following financial information:
- Revenues of the current year.
- Total assets, current assets.
- Net equity.
- Total liabilities.
- Current liabilities.
- Average monthly bills and their amount.
Did the subcontractor face any trouble with the law, especially in the form of litigation?
This is necessary. Dispute avoidance experts advise determining whether or not the subcontracting company or any of its owners/partners/executives, are facing any active litigation or legal cases. They should also find out If the subcontractor has
- Had any labor law violations?
- Had their license revoked or suspended?
- Had any judgments been filed against the company?
In these situations, they do not need to consider such a subcontractor. They must also ask if the subcontractor defaulted on a project or a certain amount of money. If they have ever been terminated from a contract, that also needs to be found out.
Legal troubles are troublesome things. Construction claims experts recommend avoiding subcontractors with legal troubles. If they have an explanation or something to prove they are on the right side of the law, it should be diligently examined.
Do not forget to ask for references
Asking the potential subcontractors to provide a few reference works. It helps attest that the subcontractor has top-quality work in their portfolio and is dependable. The company and employees can also vouch for the subcontracting company being creditworthy and worthy of consideration for work.
Moreover, referrals even help construction companies find the correct subcontractor. This helps them improve the process further.
General contractors need to make their subcontractor prequalification process accessible with ease. An online process would be available to everyone through the construction company’s website. This will help both the subcontractor and the construction company to not only have a good look at the process but also obtain information more nicely.