General contractors who are not using a subcontractor prequalification process are taking a huge risk. When the country was in the midst of the Great Recession and good contracting opportunities were becoming harder to find, more firms started bidding on projects they weren’t equipped to handle. General contractors were more focused on acquiring the lowest bid from subcontractors instead of ensuring they could perform the work. The same happened during the covid 19 pandemic where many project got delayed, canceled, or decreased in scope. With the uncertainty surrounding the economic recovery, there were again more contractors bidding on fewer opportunities.
FIVE RISKS OF SKIPPING CONTRACTOR PREQUALIFICATION
While prequalifying contractors can be time-consuming, the results are worth the effort when done correctly. Failing to do this due diligence can have significant consequences for your business.
Loss of Business Due to Improper Incident Recording
Clients that pre-screen or assess contractor and machinery traders’ safety performance typically consider health and safety performance, worker compensation rates, and regulatory compliance issues. Health and safety performance is expressed as the OSHA rate and DART rate. It is critically important to understand the definitions of medical treatment, restricted work, and lost time as not all doctor trips are recordable incidents.
Building Strong Relationships
The construction industry is heavily relationship-based. You need to take the time to reach out and review each subcontractor’s prequalification submittals to discuss your decision. Prequalifying subcontractors before they bid on your projects can lead to mutually beneficial partnerships for coming years. You also need to ensure to add subcontractors who are prequalified for any future Invitations to Bid to your distribution list. However, subcontractors who do not meet the prequalification standards, can be explain to as to why they don’t and what they can do to fix it.
Loss of Business Due to Poor Safety Performance
Clients want to work with safe contractors. So, you should avoid dealing with subcontractors who have poor performance records. You need to make sure to implement management standards that aid contractor compliance with industry standards to mitigate the risk. Moreover, you need to manage claims as they occur to minimize costs and also improve the well-being of your people.
Loss of Business Due to Poor Regulatory Performance
Poor regulatory performance can also impact whether you secure new business. Things that get client attention are serious OSHA violations, workers’ compensation claims, accidents due to mismanaged used construction equipment, and work refusals for safety-related issues. Therefore, experts recommend getting to know the most frequently cited OSHA violations in the industry and ensuring that you have an effective, well-implemented health plus safety system to prevent those incidents.
Liability for Unpaid Contractor Workers’ Compensation Premiums
If contractors have not paid their workers’ compensation premiums, general contractors can potentially be held liable for thousands or tens of thousands of dollars in recovery costs. When a contractor is mobilized, the client must obtain a workers’ compensation clearance or certificate of insurance to make sure proper coverage is in place. Obtaining a clearance at regular intervals before final payment comes in is also important.
Liability from Unmanaged Contractor Certificates
About 20 percent of certificates in an automated document tracking system are expired or about to expire within 30 days. Expired certificates can put a client at serious risk of liability if incidents occur without coverage, involving direct costs and legal liabilities. Risk increases if you use a spreadsheet to manage your contractor’s dated documents as expiry date tracking cannot be automated with Excel or email. Web applications designed with the purpose of certificate management track dates and manage notifications with automation.