To be successful, contractors must be selective with the projects they bid on, the equipment and materials they use, and the subcontractors they hire. Most contractors would agree that prequalifying subcontractors is a must-do to ensure you get quality subs, but how to go about it in the best way can be a bit of a mystery. Fortunately, there are best practices that can aid you in the prequalification process.
Why Subcontractor Prequalification is Important
Some may ask what the risk is if they don’t have a prequalification process for a subcontractor, perhaps thinking that it’s nothing more than a drawn-out hiring process that is easily fixed with firing the sub should the wrong choice be made. The issue is many contractors underestimate the unanticipated costs and delays they can incur in such situations, which can derail the project. Worse yet, if you have the subcontractor on multiple projects, it could affect your entire backlog if they don’t perform.
Important Prequalification Questions to Ask Subcontractors
To prequalify a subcontractor, everyone has some different questions or standards depending on the project and what the subcontractor is needed for. While that is true, there is standard information and questions to ask during the subcontractor prequalification process that should be true for every contractor:
- Collect basic information, such as the company ownership, the number of employees, and the size and scope of projects they’ve worked on.
- As a general rule of thumb, it is considered best practice for contractors to perform projects that are within 1.5 to 2 times their largest completed project. Check to make sure the job you are considering awarding your sub is within that guideline.
- Ask your subcontractor to provide a bondability letter from their surety company dated within the last 90 days. This will tell you if their surety is willing to bond a project of similar size. If not, this is a red flag, because their surety will have done a full review of their project history and financial qualifications. If their surety isn’t comfortable supporting a job size you are considering, you shouldn’t be either.
- Ensure you ask about any active litigation and if there have been any labor law violations, license suspensions, or revocations. Also, ask if there have been any contract defaults, termination from a contractor, or if any judgments have been filed against their company. There are many third-party reports you can pull also to verify public filings.
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Surety Bonds and Prequalifying
It’s easy to think that prequalifying subcontractors has little to do with your surety bonds or your bonding capacity, but that isn’t entirely true. When you have a prequalification process to hire subcontractors, your surety provider will view you as less risky, because they know you are working with quality subcontractors. This is especially true if you require performance and payment bonds from your subcontractors. This can even lead your surety company to be willing to increase your bonding capacity compared to other contactors that don’t prequalify or bond their subcontractors.
How Surety Agents Help with the Prequalifying Process
Surety agents work with contractors all day long and have extensive experience with everything relating to surety bonds, which means they have remarkable insights into the prequalification process and how it can work to your advantage. Quality surety experts are a fountain of information and resources that can help you put together a standard prequalification process, help you ferret out who isn’t the best option to hire for a specific project, and what a subcontractor’s bondability letter can mean for the construction job you want to bid on.
We at CSBA have over 225 years of combined surety experience, giving us the necessary insight to avoid the pitfalls and mishaps too common in prequalifying subcontractors.
Connect with our surety experts to find out how we can help you build your subcontractor prequalification process and your bonding capacity.
Get a payment bond quote now
We want to know more about how we can help your construction company get the right contractor bond for your next project.