Preconstruction Strategies: Subcontractor Prequalification

Implementing sound prequalification processes has proven to be a winning strategy for successful power industry projects.

Formal preconstruction phases have increasingly been employed to control costs for capital projects in the power industry, and they are more important than ever in the current environment, where COVID-19 has caused market disruptions. The preconstruction process grew out of traditional cost estimating, eventually encompassing forecasting, bidding, data management, value engineering, constructability, virtual design and construction (VDC), and more.

1. Bringing owners and contractors to the table at the earliest stages of a project can allow the team to develop the best possible plan. Courtesy: Graycor

Even before the pandemic, many owners and their construction partners were performing more conceptual design and estimating work, as well as collaborating more often and earlier in a project, according to Advancing Preconstruction conference coordinators. Owners and contractors alike see the investment as a way for project teams to develop a well-structured plan (Figure 1) and achieve greater transparency. The result is on-time, on-budget project completion and greater client confidence. Many project delivery methods emphasize the importance of preconstruction, with early contractor involvement (ECI)—which brings contractors to the table at the earliest stage of a project, typically during the design concept or schematic phase—providing a high level of value.

One area that is coming to the fore as an important part of the preconstruction process is subcontractor prequalification. Prequalification is a way of mitigating risk not only by establishing financial protections and becoming familiar with subcontractor performance, but by enabling productive partnerships before jobsite work even begins. A thorough prequalification procedure goes beyond a narrow focus where risk is measured only by a subcontractor’s financial status—specifically, their 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, therefore streamlining the path to project success for owners.

The Prequalification Process

Ultimately, a contractor prequalification process helps owners and general contractors ascertain the competence of a contractor prior to hiring them. General contractors should invite subcontractors to begin the prequalification process by filling out a questionnaire, preferably electronically. The questionnaire (and all prequalification forms) should be simple and streamlined, avoiding unnecessary questions or repetitiveness.

Preconstruction qualification processes have historically included manual processes, data silos, and disconnected teams. When utilizing an online tool or software, the entire team operates from a single source of information. By removing barriers, contractors can improve subcontractor response rate. While questionnaires frequently need to be customized to a general contractor’s specific needs, common elements include:

    ■ Business information, such as business type, legal structure, and ownership.
    ■ 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 experience modification rate, total recordable incident rate, lost-time incident rate, violation statistics, safety affiliations, and programmatic information.
    ■ Quality/project controls programmatic information.
    ■ Trade affiliations, state licenses, and geographic preferences.
    ■ References, including owners and other contractors.
    ■ Participation in any third-party procurement systems.

Software or web-based prequalification systems are now commonly available. According to a survey by The Associated General Contractors of America (AGC) and FMI, 58% of construction professionals expect there to be more technology-driven change within the next five years than there has been in the last 50 years. Several construction technology vendors offer preconstruction qualification solutions, and different packages offer a range of features to meet different needs in the industry and/or to suit the needs of individual firms. Key benefits of technology-driven procedures include:

    ■ Streamlines process, improves productivity, and reduces administrative costs.
    ■ Provides a central hub for all estimating, preconstruction, and operations team members.
    ■ Maintains current and accurate information on contractors, vendors, and suppliers.
    ■ Ensures compliance with requirements, such as certifications, insurance, documentation, licenses, financial, and safety information.
    ■ Provides a single source of information.
    ■ Can be used to automate messages to subcontractors to update their information.

2. Having properly trained people capable of utilizing the latest technology to its fullest extent is vital to project success. Courtesy: Graycor

In today’s construction industry, technology has a role to play that goes far beyond prequalification processes; new programs and tools are found in almost every aspect of a project. Therefore, a subcontractor’s technical sophistication may be a consideration when it comes to assessing their qualifications. 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 (Figure 2)—can be a differentiator.

While automated data collection and information delivery can be cost-effective and convenient, general contractors will have the best results if they follow up using person-to-person interactions when helping subcontractors through the prequalification process. For example, the general contractor can offer in-person meetings, develop meaningful relationships prior to a bid event, create (and maintain) a feedback loop for subcontractors, and explicitly express appreciation for the subcontractor’s participation. By supporting the efforts of potential subcontractors and answering questions in a timely manner, general contractors can begin building a positive working relationship with future subcontractors. When seeking subcontractors in new markets or regions, face-to-face meetings can be particularly beneficial.

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.

Prequalification Improves Safety Performance and Increases Cultural Alignment

According to the National Safety Council (NSC) Congress and Expo, prequalification processes helped drive safety performance for contractors and vendors. In partnership with Browz, a provider of prequalification solutions, NSC analyzed a database of 17,000 suppliers. Metrics included TRIR (Total Recordable Incident Rate), DART (Days Away, Restricted, or Transferred) rate, and LWR (Lost Workday Rate). Research results indicated that when contractors and vendors participate in third-party prequalification, they tend to have better performance across these traditional safety statistics, compared to national averages. Specifically, TRIR, DART rate, and LWR were 34%, 48%, and 65% better, respectively, than national intra-industry averages.

Subcontractor prequalification is not just about data gathering, nor is it 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 who have thorough prequalification routines 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.

Many power industry owners are challenged with increasing levels of spending when it comes to diverse, minority, disadvantaged, and local firms. Reaching out to these firms during a bid event can be challenging. To be better prepared, general contractors can be proactive, identifying contractors, suppliers, and vendors that meet requirements in different trades. Developing an outreach and engagement program is critical to gaining an understanding of subcontractors’ capabilities, as well as to developing relationships.

General contractors should seek to establish a network of subcontractors who have similar views on risk, including risk tolerance and commitment to risk mitigation. While ideally every subcontractor achieving “prequalified” status would be completely free of any trouble spots on their qualification, this is not always realistic. Putting issues in context is important. For example, when it comes to a company’s safety record, some incidents will have greater relevance and significance than others, so the general contractor should examine the specific cases surrounding any incidents and should consider them in the context of trade-wide trends.

Many concerns can be addressed by the general contractor in a risk mitigation plan. By prequalifying contractors, general contractors can reduce the inherent risks of working with a new contractor, ensure safety and quality, minimize disruptions, and increase the probability of successful project outcomes. 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. Furthermore, it is a good idea for general contractors to have risk mitigation plans in place even when a subcontractor appears low risk. This is particularly true for trades that are generally considered high-risk and for trades in new geographic regions or markets.

Another way in which prequalification achieves cost savings—and thereby delivers better outcomes for the entire project team, including owners—is that the process helps general contractors and owners assess interest in a given project early on. If there is little interest, adjustments may need to be made to make the project more attractive to prospective bidders. An additional owner benefit to working with a general contractor who has a proven prequalification process is it can help weed out potential subcontractors who are not qualified or who do not have the right skill set. Ultimately, prequalification processes increase the likelihood of getting the best contractors in terms of performance, safety, and quality—at the right price.

Like other aspects of preconstruction, prequalification is not a one-time effort but requires ongoing management and improvement. General contractors should review their processes, procedures, and qualifications annually, if not more often. Similarly, any subcontractor database maintained by the general contractor should be regularly updated.

Power industry project teams have become increasingly committed to preconstruction processes as part of capital construction. To date this has meant having a strong focus on compelling new products or procedures such as computer modeling, forecasting, and virtual design. But other key aspects of preconstruction, such as subcontractor prequalification, are now having their importance recognized, and this is leading to enhanced risk mitigation, improved working relationships, and ultimately, better project outcomes. ■

Aman Singh is manager of Preconstruction Services with Graycor Southern Inc.

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