What is Subcontractor Prequalification?
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 ensuring you’ve selected the best possible subcontractors for your construction projects. While a subcontractor might be a great choice for one project, they may not be the best choice for the next. Determining “right fit” helps companies eliminate the most risk possible during preconstruction.
What is the Process for Subcontractor Prequalification?
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 onsite 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 prior to bid selection and contract award.
How Prequalification Helps Mitigate Risk
Let’s be clear: we know that sometimes you have to work with risky subcontractors. That’s why it’s important to have a prequalification process in place that focuses on loss prevention and helps you proactively reduce the scale of impact when subcontractor risks become realized. Analyzing and assessing the risk of subcontractors is a great start, but your prequalification process needs to lead to the implementation of effective mitigation plans. TradeTapp makes that easy with automated workflows for product features to create, save, and track risk mitigation plans on all of your projects.
Even if at the beginning of a project a subcontractor looks safe, 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 still leave a general contractor with a troubled subcontractor. To thoroughly manage risk, even a subcontractor that is qualified at the outset of a project must still be managed throughout it.
Principles of a Successful Prequalification Workflow
Principle 1: Be comprehensive
This sounds fairly 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 analysis of financial health.
Principle 2: Be project-based
We encourage our clients to be project-based on their evaluations. While it’s certainly 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 specifics of the project (i.e., it’s duration, location, award size, market sector, ownership type, etc.) are significant factors to be considered at the time of award.
Principle 3: Be practical
Without a doubt, 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 they are 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.”
Getting Subcontractors to Fill Out Prequalification Forms
Invest in your relationships
It’s said all the time, but it needs to be reiterated: 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 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 strong 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.
Automate your prequalification process
Managing subcontractors and the prequalification process takes time. There are dozens of tasks involved. You have to reach out to subcontractors, educate them on the process, and get them to provide all the data you need. Traditional prequalification processes are repetitive and involve collecting and entering the same information over and over again. Any time you have repetitive processes, there is an opportunity for automation to increase efficiency and streamline operations.
There are email automation tools such as Zapier and Boomerang that can help, but it’s still not enough. Subcontractor prequalification software 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
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 there is a question on the form that’s holding up the prequalification process, take the time to listen and work on optimizing your forms for future subcontractors. An easier form equals more responses.
Leverage your project teams
The entire organization needs to have a risk mindset when it comes to managing subcontractors. Since project teams are on the front lines talking to subcontractors, they need to be well informed of the prequalification process and 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, which is inherently unique to you, the subcontractor has to 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 greatly 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.
Properly onboard your subcontractors
It’s important to set subcontractors up for success before you even send 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 along the way. 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.