5 steps to prequalifying subcontractors

Choosing subcontractors is an important decision which can directly effect the completion and profitability of your project. So how are you currently choosing your subcontractors?

Selecting the lowest bid or hiring a friend within the industry is a casual approach and can at times become a costly method. Prequalifying your subcontractors is a safe and educated selection process. By evaluating their financial state, safety procedures, reputation and more you have the ability to use facts to help lock in a quality subcontractor.

These five tips are a handy guide to analysing the businesses you're thinking of engaging.

1. Financial strength

Although a subcontractor may appear to be successful and working on a regular basis, it is important to look deeper into their financial strength before signing the contract. It is possible that a subcontractor was financially stable for years but uncertain economic times could leave them unstable and incapable of delivering on your project.

To ensure the subcontractor has the financial capabilities to complete the task at hand you should ask for:

Two years of financial statements or tax returns
Information on the three largest contracts they've been awarded in recent years
Banking information
Cash flow and potential lines of credit available

It's important to ensure that all this information will be kept confidential and will only be used for the purpose of qualifying them for the project. Always check for red flags in terms of weak working capital and equity.

2. Listen up

Onsite chat between workers can be one of your most valuable resources for prequalifying a subcontractor. Employees will begin talking if the owner is struggling to make payroll each week or if they begin refinancing to increase cash flow. The selling of equipment, missing payments for materials and the overall financial condition of a business can start raising red flags with employees and they will begin talking to their co-workers in search of answers. If you're considering signing a contract with a business it is important to be aware of the signs and be tactical about your approach.

3. Evaluate the subcontractor

This is your opportunity to learn about the culture of the business and the integrity and quality of the subcontractor.

Ensure you are aware if the business has:

Any recent or pending lawsuits
Ever failed to complete a project
Ever filed for bankruptcy

It's important to request written explanations regarding any of these scenarios. Once you've received this information, dig deeper and contact the other parties involved to get both sides of the story particularly in the cases of incomplete projects.

4. Analyse their current safety practices

The safety practice which they have in place are important as this can directly effect the cost and timely completion of the project. If they don't have an effective safety procedure in place, it would be inefficient and costly to retrain their workers.

The questions to ask are:

What are your current safety practices?
What safety process do you employ to protect your workers?
Provide your incident report from the past 3 years
What is your worker's compensation rating?

The safety of workers onsite can directly effect the productivity and profit of your project.

5. References

This step is particularly important for new subcontractors who you haven't previously worked with. Speak to others in the industry who have experience with the business you're looking to engage and find out about the delivery and quality of work. This is an essential tool for gaining first hand feedback about their capabilities, reliability, quality and performance.

Once you've prequalified and confirmed the subcontractor who will be working on your project, you should run through the procedures and what is expected on your site. By leading an effective prestart meeting you're able to easily convey this information to all your workers.

We have created a Toolbox Talk Agenda to help you deliver an effective prestart meeting with your team.