4 Tips to Help Prequalify a Subcontractor

Some of us like to think that business can still be accomplished with a handshake agreement, and that may be true for some industries and individuals. However, in the construction industry, establishing rights, rules, responsibilities, and recourse in a written contract is essential. 

You may have a written subcontractor agreement in place (and good for you, if you do), but do you have written prequalification criteria to determine which subcontractor you want to hire before you get to the signing stage?

It’s important to establish qualifications you expect your subcontractors to meet, so these can be addressed as early in the process as possible.

John Lack, Acuity Construction Consultant, says his top four criteria for subcontractor prequalification are: 

1. Project Experience

It’s obvious that you want to hire subcontractors who have expertise in their trade. They know what they’re doing, and they do it well. They should carry the appropriate licenses for the nature of work being performed and show a portfolio of projects completed. 

2. References

Do an online search for any type of contractor, and you are likely to find an advertisement indicating they are the best at what they do. However, it’s important to validate that claim. Subcontractors should be able to provide a reference list that includes previous customers, general contractors who have hired them, and bank references. Previous customers are a great resource for how the subcontractor's work holds up over time. GCs can speak to the subcontractor’s professionalism, attention to detail, and ability to work with other contractors. Finally, a bank reference may be important for larger contracts to ensure the contractor is financially solvent. Checking a bank reference will provide some peace of mind that they can continue to pay their bills in between payouts from your contract. 

3. Proof of Insurance

You can be held liable for anything a subcontractor does on your job site or related to your job, so confirming insurance is critical. You can ask for certificates of insurance but recognize that piece of paper or pdf is a snapshot—evidence of coverage as of the date the certificate was issued. A subcontractor should carry whatever insurance your subcontract agreement deems necessary, but general liability, auto liability, and workers’ compensation at a minimum. Best practices include having your company named as additional insured on any liability policy the subcontractor carries. Their policies should include primary and non-contributory wording, meaning your insurance should not contribute to a loss they cause. They should also have their policies endorsed to provide your company with waiver of subrogation and notice of cancellation with a minimum of 30 days’ notice. The longer the notice period, the more time you and they will have to secure replacement coverage. 

4. Legal History

Check the subcontractor's license on the contractor’s board to confirm appropriate licensing and to see if there have been any complaints or citations. Check OSHA’s website for any complaints or citations as well. Run a background check to see if there are any suits, judgments, or liens against the subcontractor. Be sure to consider any other governmental entities that may have a record of citations or violations (EPA, state/county agencies, etc.). 

Some other qualifications you may wish to consider include:

• Adequate and skilled human resources. Do they have enough well-trained employees to do the job? Do they have a safety director? Do they have safety goals? What are they? 
• Safety culture. Do they have a formal training program? Does it include safety? Do they offer recognition for employees who are safety conscious? Is there clear reporting of safety issues? Is there a written inspection process? How many job sites get inspected? How often is each job site inspected? When safety issues are recognized, how are they addressed?
• Do they track metrics, and if so, how? What is their incident rate and how does it compare to the national incident rate for their trade? What does their workers' compensation experience modification rating look like? Be sure not to take a number only at face value. A credit modifier may look great, but it only shows the claims history up to the start of the current policy term. If the subcontractor just had two large claims, that metric will not be included in the mod that was effective at the beginning of the policy period. 

For more information on insurance for contractors, please visit Acuity’s website.