Welcome to the Higley BUILDERS BLOG, where our experts share their insights and technical expertise on the construction industry.

This month, Gavin Smith focuses on the subcontractor prequalification process that is an important step in creating a solid foundation for project excellence. The strength of a project is often determined by the strength of the team behind it and subcontractor prequalification is essential to a strong team.

      Gavin Smith | Director of Project Management | 9 Years with Higley

 BUILDING SUCCESS WITH SUBCONTRACTOR PREQUALIFICATION

The success of a project often hinges on the reliability and competence of the subcontractors involved. Prequalifying subcontractors is a critical step that can make or break a project. It involves a thorough evaluation of potential subcontractors' skills, experience, financial stability, and safety records, among other factors. Understanding the importance of subcontractor prequalification and key criteria will help make informed decisions and build a robust network of reliable partners.

Subcontractor prequalification is essential to ensure that subcontractors can perform their work competently, safely, and within the project's requirements. It helps mitigate risks associated with subcontractor default, delays, poor quality work, safety incidents, and financial instability.

Construction companies have been prequalifying subcontractors for decades, although the formal practice and prevalent adoption have increased significantly in recent years. The trend towards prequalification has gained momentum as project complexities and risk has grown, emphasizing the need for thorough vetting of subcontractors. In today’s construction industry subcontractor prequalification is considered a standard practice among many companies, especially those managing complex or high-risk projects.

The prequalification process is an in-depth one that can often take some time and should be started before a project goes out for bid or before the effort becomes critical. The process involves submitting an application in which subcontractors provide detailed information about their companies, including financial statements, past project experience, safety records, insurance coverage, licenses, and certifications. This information is evaluated against predetermined criteria set by the construction manager and insurance carriers. Subcontractors may also need to undergo interviews or provide additional documentation as part of the evaluation process. After a subcontractor is prequalified, they will then undergo an annual review to ensure that they still meet the expectations of the construction manager.

Letter sent to all subcontractors informing them about the prequalification process

Outside of the formal prequalification process, offering guidance or tips on how companies can improve their chances of qualifying helps both parties and allows for more diverse companies to enter the industry. Prequalification does not exclude any sub it identifies the areas where the Construction Manager and subcontractor need to collaborate to achieve success together.  This may include maintaining good financial records, investing in safety programs, obtaining relevant certifications, improving project management practices, and building strong relationships with contractors. The process is also at no cost to the subcontractor ensuring that there are no barriers to prequalification.

Prequalification software is an integral part of the process for analyzing subcontractors as well as keeping all information organized and readily available. There is no standard system within the industry but software such as TradeTapp or Compass, are commonly used by companies and subcontractors.

Prequalification benefits subcontractors by enhancing their credibility and reputation within the industry. Qualified subcontractors are more likely to be considered for projects, potentially leading to increased opportunities and partnerships with reputable contractors. It also helps subcontractors understand and meet industry standards and expectations.

This process also allows the subcontractors to understand how other trades on a project can perform in their work without causing delays, benefiting all subcontractors. The subcontractors are able to bid against equal competition on projects, another added benefit.

The obvious benefits to construction managers and owners are that a project is being worked on by verified companies that can perform the work requested of them. Another benefit is that a construction manager and subcontractor now have a preestablished relationship before a project begins and can continue to develop a bond as yearly reviews take place.

Generally, the prequalification requirement and process is well received. Common concerns may include the time and effort required, specific criteria used for evaluation, transparency of the process, and perceived fairness in vendor selection. A construction manager can get pushback from subcontractors when requesting financial information, which can be worked around by arranging a one-on-one session to review the information and ensuring confidentiality.

For construction managers, risks include selecting subcontractors who may not perform as expected, leading to project delays, cost overruns, or disputes. Subcontractors risk being excluded from bidding on projects if they fail to meet prequalification criteria, as well as the administrative burden and time investment required to complete the prequalification process.

Most Owner contracts require subcontractor prequalification; depending on the jurisdiction and nature of the project, there may be legal or regulatory requirements for it. Owners typically appreciate thorough prequalification as it helps mitigate project risks and ensures that subcontractors are capable of meeting project requirements.

Prequalifying subcontractors is not just a procedural formality but a strategic imperative that directly impacts the success of construction projects. By diligently assessing subcontractors' qualifications, capabilities, and reliability, you lay a solid foundation for project excellence. As you implement these best practices, you will find that investing time and effort in prequalification pays off with smoother project execution, fewer surprises, and stronger partnerships. When prequalification is a priority, the entire project team can thrive on a jobsite.