Anatomy of an effective preconstruction strategy
Subcontractor prequalification one important parameter
For capital projects, having a preconstruction phase is known to control costs. Many contractors, practiced in their planning role, are able to accurately estimate conceptual designs, align costs with scope and schedule during the design phase.
Modeling and forecasting receive a lot of attention in discussions of preconstruction best practices, but subcontractor prequalification is equally important. Along with establishing financial protections against subcontractor defaults and monitoring subcontractors during a job, prequalification is a key strategy for mitigating risk.
That said, the most effective prequalification procedures go beyond a narrow focus where risk is measured only by a subcontractor’s financial status — specifically, its ability to borrow money and avoid default. At its best, prequalification is an early opportunity for a general contractor to find partners with complementary business values, streamlining the path to project success.
Prequalification part of preconstruction
Research performed by Hamzah Alshanbari, a graduate student at the University of Florida, found a correlation between project cost performance and the associated preconstruction investment. Many general contractors report success associated with preconstruction planning consistent with Alshanbari’s findings. These general contractors find that investment in a focused preconstruction phase not only allows project teams to develop a well-structured plan but provides significantly better transparency for clients. The result is on-time, on-budget project completion and greater client confidence.
Many project delivery methods emphasize the importance of preconstruction —particularly the benefit of early input from contractors, which brings an experienced viewpoint on a project’s constructability. Contractor input typically improves estimating and procurement, scope and scheduling, value engineering, waste elimination and risk identification. Maximum value can be derived by using the early contractor involvement (ECI) project delivery method, which brings contractors to the table at the earliest stage of a project, typically during the conceptual design or schematic phase.
During a recent preconstruction conference, more than 80% of respondents identified as working on construction projects with 30% or greater subcontractor participation, with several being over 50%. This substantiates the need for identifying the right subcontract partners for active management of project risks. Experienced engineer/procure/construct (EPC) contractors will assess subcontractors according to a checklist of critical considerations. Among these are:
- Safety (largely based on past performance records)
- Financial stability
- Bonding capacity
- Relevant experience
- Current capacity/backlog
- Reputation and references.
As the construction industry moves increasingly toward the adoption of new technologies, a subcontractor’s technical sophistication may also be a consideration. For complex capital projects, a subcontractor’s fluency with project management software — including their willingness and ability to train all team members on the software — can be a differentiator.
While ideally every subcontractor achieving “prequalified” status would be completely free of any trouble spots on its application, this is not always realistic. Fortunately, many issues can be addressed by the general contractor in a risk mitigation plan. For example, if a subcontractor is a good fit in terms of expertise or company culture, but has safety incidents on their record, the general contractor may elect to put extra stipulations in the contract that ensure adequate safety measures are taken. A general contractor should have a clear review process in place for considering and approving exceptions to their prequalification standards. It may also be necessary for the general contractor to devote additional manpower to managing known risks associated with a given subcontractor.
Even when a subcontractor appears low risk, it is a good idea for general contractors to have risk mitigation plans in place. This is particularly true for trades that are generally considered high-risk and for trades in new geographic regions or markets.
General contractors who “check all the boxes” as part of their prequalification routine are in the best position to improve project outcomes — a win not only for the construction company itself, but for the entire team, including the project owner.
It goes without saying that a general contractor’s leadership must exemplify the company’s core values, such as integrity, safety, diversity, and taking a long-term perspective. But these values should also be manifested at every level of the organization and on the jobsite, including by subcontractor representatives. Therefore, subcontractor prequalification is not just about data gathering, nor it is about finding the company with the lowest-priced proposal. Going beyond the numbers is the only way to ensure that a subcontractor aligns with the general contractor’s values and is truly a good fit.
General contractors should seek to establish that a subcontractor has similar views on risk, including risk tolerance and commitment to risk mitigation. Going beyond the numbers is again useful when examining a subcontractor’s safety statistics. Some incidents will have greater relevance and significance than others, so when evaluating a subcontractor’s safety record, the general contractor should examine the specific case surrounding any incidents and should consider them in the context of trade-wide trends.
An important point is that the prequalification phase offers an opportunity for subcontractors and general contractors to begin to build a positive relationship. To accomplish this, the general contractor should be careful to conduct information-gathering in a way that is respectful and supportive. For example, the general contractor can offer in-person meetings, create (and maintain) a feedback loop for subcontractors who are working through the prequalification process, and explicitly express appreciation for the subcontractor’s participation.
[subhead]Good partnerships, good projects
All steps involved in subcontractor prequalification must be performed in an efficient manner to optimize the cost/benefit of the preconstruction phase and to avoid deterring trades from bidding. Prequalification is a multi-step process, so ample time should be allowed for its completion. Collecting and reviewing information early — not immediately before accepting bids — can improve subcontractor responsiveness, translating to better project outcomes. This is especially true when subcontractors are not experienced with prequalification procedures; when this is the case, the general contractor may need to devote time to educating potential applicants.
The first step for subcontractors to take when seeking prequalification is to fill out a questionnaire or form that has been created by the general contractor. While these forms frequently need to be customized to the general contractor’s specific needs, common elements include:
- Past sales and current backlog information.
- Financial standing information such as statements, history, and a surety letter.
- Past project references with relevance to project size/market/complexity.
- Safety information such as EMR/TRIR/LTIR/violation statistics, safety affiliations, and programmatic information.
- Quality/project controls programmatic information.
- Trade affiliations and geographic preferences.
General contractors can improve response rates by ensuring that their questionnaires and other forms are simple, streamlined and easy to access. The forms should avoid unnecessary questions or repetitiveness and they should be easily accessible online. Using a software-based system with automatic reminders can help subcontractors stay on track during the process, as well. Again, in order to build the best relationship with their future subcontractors, general contractors should not stop at putting out a questionnaire but should follow-up with applicants answering any questions they may have and helping them work through trouble spots. When seeking subcontractors in new markets or regions, In-person interactions can be beneficial.
Finally, it should be noted that prequalification is not a set-it-and-forget it effort. General contractors should review their paperwork and procedures annually, if not more often. Similarly, any subcontractor database maintained by the general contractor should be regularly updated.
Like other preconstruction procedures, subcontractor prequalification can result in a solid return-on-investment. Not only are risks assessed and proactively addressed before they become issues on the jobsite, but prequalification offers the best opportunity for a general contractor to find like-minded partners. Prequalification lays the groundwork for better working relationships and, ultimately, better project outcomes.