Every construction project involves an assorted level of risk. Subcontractor prequalification is one process designed to help reduce the overall risk of a project by determining if teams are financially and organizationally ready to take on the scope of work needed. Let’s explore the ins and outs of prequalification, from what it is to the benefits and templates for success.
What we cover:
According to The Horton Group, subcontractor prequalification is “assessing a potential subcontractor’s ability to borrow money and honor that debt.” It’s a crucial element of the preconstruction phase. During prequalification, the risk management team will evaluate the risk of working with potential vendors before the estimating team awards contracts.
It’s all about selecting the best possible subcontractors for your construction projects. While a subcontractor might be an excellent choice for one project, they may not be the best choice for the next. Determining the “right fit” helps companies eliminate the most risk possible during preconstruction.
There are many ways to build a detailed subcontractor prequalification process. Today, companies have an array of options, from simple forms to robust third-party platforms.
Whichever you choose, your process should include:
✔ Initial underwriting on standard metrics (stability, past performance, safety, financial health, ethics, compliance, etc.)
✔ Additional assessment of higher-risk trades (e.g., curtainwall) in terms of setting approval authority and limits
✔ Additional assessment of potential subcontractor risk in new markets/geographies
✔ Setting overall company risk tolerance, both in terms of capacity and mitigation strategies
✔ Establishing a clear process for review and approval of exceptions
✔ Setting a cadence for updating subcontractor qualifications: annual, bi-annual, or quarterly
✔ Coordinating with project management to create feedback loops with on-site teams
From there, you can establish a database of prequalified subcontractors for your estimating team to choose from. Or, build a list for upfront evaluation before bid selection and contract award.
Subcontractor prequalification has many benefits, with these being a few of the top ones:
Let’s be clear: we know that sometimes you have to work with risky subcontractors. That’s why it’s essential to have a prequalification process that focuses on loss prevention and helps you proactively reduce the scale of impact when subcontractor risks become realized.
Even if a subcontractor looks safe at the beginning of a project, it’s a good idea to put a plan in place to check in on them as the project progresses. They may have enough capital to take on the project, but what if they start another project midway through yours? Prequalification is necessary, but it’s not sufficient. Sometimes, even the best prequalification and in-process management can leave a general contractor with a troubled subcontractor. To thoroughly manage risk, even a subcontractor qualified at the outset of a project must still be managed throughout it.
A solid prequalification process is one way to determine if subcontractors have the necessary safety standards. As safety is paramount to your project’s success, complete insight into a company’s safety record and data will ensure you choose the right team.
Local laws and regulations require firms to have the right level of certifications, licensing, and insurance. A diligent prequalification process helps teams determine if a company has all the documentation and requirements to perform the work in compliance with regional laws and regulations.
Overall, subcontractor prequalification helps improve project quality. Subcontractors with better records for safety and compliance and who are financially stable are more likely to deliver projects on time, on budget, and at a higher quality.
So, what’s behind an optimal prequalification process? These are three guiding principles for success.
This sounds pretty obvious, but it’s nonetheless true: evaluations are most effective when they leverage a comprehensive profile of information and data. With subcontractors, that means project history, past safety performance, backlog position, and quality of work are all key indicators of potential risks, in addition to the traditional financial health analysis.
We encourage our clients to be project-based on their evaluations. While it’s undoubtedly important to understand a company’s financial or safety standing independent of any other variables, it lacks the context of assessing the actual fit with the award they’re being considered for. The project’s specifics (i.e., duration, location, award size, market sector, ownership type, etc.) are significant factors to consider at the time of award.
The most important principle of the qualification workflow is that it needs to be practical. Far too many existing vetting “solutions” are absolute in their nature — with outputs like “approved,” “disapproved,” “yes,” or “no.” Being absolute in qualification puts operational teams in a corner when handling the realities of project budgets, ownership demands, or the like. Instead, we propose a “yes, but” approach for each evaluation, which is to say “yes we can make this award, but here are the risk management controls we need to implement to do so intelligently.”
Subcontractor engagement in the prequalification process can be a challenge for GCs. Here are a few ways to get subs to fill out forms more comprehensively and faster.
Construction is a relationship-based industry. Building strong relationships takes effort from subcontractors, general contractors, and even owners. Prequalifying subcontractors can feel transactional, especially when you’re asking for sensitive financial information. Having empathy for your subcontractors and the amount of prequalification requests they get is an important start.
That’s also why prequalification technology is a must for choosing subcontractors today. A stronger relationship with a subcontractor means they’re more likely to submit a response. The construction industry is adopting and implementing more and more technology, but building solid relationships still requires communication and a personal touch. Set up face-to-face meetings to descope projects with subcontractors and give them feedback throughout the prequalification process. It increases transparency and fosters long-term relationships because it starts with mutual respect and understanding.
Managing subcontractors and the prequalification process takes time. There are dozens of tasks involved. You have to contact subcontractors, educate them on the process, and get them to provide all the necessary data. Traditional prequalification processes are repetitive and involve collecting and entering the same information repeatedly. Any time you have repetitive processes, there is an opportunity for automation to increase efficiency and streamline operations.
Email automation tools such as Zapier and Boomerang can help, but it’s still not enough. Subcontractor prequalification software like TradeTapp takes it one step further by sending automated follow-ups, reminders, and renewals to collect up-to-date info — saving general contractors hours. Once you’ve gathered accurate information, you can receive automated risk mitigation recommendations to identify and reduce risk early in the preconstruction process.
Trim down your questionnaire and have multiple variations for different types of subcontractors and projects. Improve it even more by getting feedback from subcontractors. This will also help you evaluate if they’re a fit for that project, which can create a successful prequalification workflow. If a question on the form is holding up the prequalification process, take the time to listen and work on optimizing your forms for future subcontractors. A form that’s easier to fill out equals more responses.
The entire organization needs to have a risk mindset when managing subcontractors. Since project teams are on the front lines talking to subcontractors, they must be well-informed of the prequalification process. They should advocate for the risk team by encouraging subcontractors to participate. Communicating the prequalification process to your project teams enables them to answer questions as they arise and fully understand the workflow of your subcontractors.
If you use a homegrown system that is inherently unique to you, the subcontractor must learn a new prequalification process and find their own way. They have to get used to your form, login process, and submission steps. With subcontractor prequalification software, the process is the same with all the general contractors. Subcontractors can significantly reduce the time it takes to fill out a form by being able to save safety documents, financial records, and even canned responses to frequently asked questions.
It’s essential to set subcontractors up for success before sending them a prequalification form. Proper onboarding gives your vendors all the tools they need to start the process and answers any questions they may have. With TradeTapp, you get a team dedicated to supporting your subcontractors, an implementation specialist, and many resources for both general contractors and subcontractors. By improving your prequalification response rate, you’ll be ahead of the game and well-suited to mitigate risk before it’s too late.
We’ve put together this free subcontractor qualification form you can use to collect information from potential trade partners. If you’d like to streamline your process and save time qualifying subcontractors, get in touch to learn more about TradeTapp – our subcontractor qualification and risk management solution that lets you automate qualification reminders, receive project-based risk mitigation suggestions, and more.