3 reasons general contractors should prequalify their subcontractors
By McKenzie Gregory,
Construction is an industry that inherently involves risk. Whether it’s job site safety hazards or budget overruns, general contractors must find ways to mitigate that risk around every corner. When vetting and hiring subcontractors, for instance, what a general contractor doesn’t know has the potential to cost them millions in losses.
Here are three reasons why subcontractor prequalification is an absolute must for general contractors to avoid irreparable damage to their projects and businesses.
1. General contractors need to know who they’re working with from the beginning
There are plenty of reasons general contractors avoid dealing with prequalification. In an industry built on relationships, they may select subcontractors who they have a personal history with, regardless of how qualified that subcontractor is for the job. In a bid environment, there’s often pressure to go with the lowest bid every time, and time constraints make it tempting to skip steps in the preconstruction process whenever possible. In today’s industry, however, these choices open general contractors up to a substantial amount of risk.
By avoiding the crucial step of prequalification, general contractors expose themselves to disaster down the road: lengthy project delays, heavy financial losses, and even litigation that could lead to bankruptcy. When general contractors choose prequalification, they can quickly and effectively assess a subcontractor’s financial condition, safety record, and insurance coverage — all factors that will greatly influence the amount of risk they’re taking on by working with them. Prequalification takes time, but it’s well worth it when considering the level of risk avoided as a result.
2. It streamlines preconstruction for both risk managers and estimating teams
As general contractors continue to prequalify subcontractors, they develop a pool of go-to businesses that meet their criteria for future projects. It makes selecting subcontractors easier and easier over time. Qualified contractors may even be incentivized to price their bids more competitively because they know they’re only competing with qualified firms.
Prequalification workflows also help encourage transparency between risk management and estimating teams where bottlenecks may otherwise occur. Because subcontractors have to complete the prequalification process before being permitted to bid a project, estimating teams won’t waste time reviewing proposals from subcontractors who turn out to be a poor fit.
3. With the right tools, it’s easy to integrate into the preconstruction process
A dedicated, systematic approach is key to a prequalification process that ensures all risks are taken into account. With the growing adoption of subcontractor default insurance, general contractors are relying less on bonds and sureties as a way to prequalify subcontractors. Instead, they’re bringing prequalification in-house, developing a more integrated process that creates visibility into the risks that each bidder brings.
That’s where technology comes in. For instance, TradeTapp by BuildingConnected helps general contractors identify risk while also giving them the tools they need to create, strategize, and build smarter — mitigating issues before they happen. With built-in workflows that can be tailored to any organization, TradeTapp helps general contractors formalize and streamline their unique prequalification process during the preconstruction phase.
Prequalification is a no-brainer in today’s high-stakes industry
It’s a harsh reality of this industry: general contractors will always have to take on some level of risk when selecting subcontractors. However, through a structured prequalification process, they can figure out the subcontractors who are the best for a given job — and put controls in place so that they’re always protecting themselves. Using technology to effectively assess and plan for risk before accepting bids and awarding contracts can make all the difference in ensuring every project is safe and profitable.
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