Contractor Prequalification: Your 2023 Process Improvement Plan

The success of any project depends on quality partners—companies that work hard to mitigate risk both on and off the job site. As project timelines grow more demanding, one mistake from a contractor or subcontractor can derail an owner or GC’s ability to deliver timely results under budget. That’s why industry experts have long-emphasized the importance of ensuring that a rigorous prequalification process takes place before a project gets underway.

Understanding the importance of vetting contractors’ and subcontractors’ financial and safety history is a key part of any company’s risk management strategy. For years, contractor prequalification was the gold standard in assessing a contracting partner’s financial health, safety record, and capacity to perform the needed work. 

But the industry’s leading builders and owners are embracing a new method. As capital projects face new challenges, such as labor constraints that can give rise to any number of interdependent risks, traditional assessments don’t adequately account for the evolving needs of owners and project managers. This article will explore some of the long-running benefits of contractor prequalification, but also the pitfalls—and how we, at Highwire, are rethinking and redefining what it means to manage risk while building and maintaining strong relationships during these trying times in the industry. 

An alternative to prequalification: Partner Elevation

Many experts agree: the traditional “yes or no” or “pass or fail” model of prequalifying contractors and subcontractors is outdated. A new framework is needed to better account for this evolving business landscape, where interdependent risks can emerge amid more ambitious capital projects, tighter schedules, and limited availability. Our proposed framework moves beyond the “pass or fail” proposition to one of collaboration, engagement and peer improvement. It’s called Partner Elevation. 

The need for active, real-time collaboration and problem-solving leading up to and during the life cycle of a project has never been higher. The solution is to elevate partners, or treat your contractors like strategic partners, coaching them throughout the course of a project and building a foundation of collaboration and trust.

Early assessments still play an important role in risk mitigation, providing a picture of what areas need improvement. But the work of improving and identifying safety gaps should happen holistically—as part of a collaboration between managers and owners and their contracting partners. 

What is contractor prequalification?

In construction, contractor prequalification is a step general contractors (GCs), construction managers (CMs) and asset owners take to gather information about contractors and subcontractors. GCs and CMs want to work with safe contractors and subcontractors; they want to know that their contracting partners have a track record of completing projects on time and without significant incident. But no company is perfect—even the most qualified contractors and subcontractors encounter risks during the course of a project. The contractor prequalification process is a way of assessing a contracting partner’s historical performance with an eye for how safe and reliable they would be as partners on future projects. 

What does the contractor prequalification process look like?

Hiring partners can request prequalifying information from a potential contractor or subcontractor before a project goes to bid, or they can request that information be sent along with the actual bids themselves during the bidding process. There are any number of prequalification form templates available online.

What GCs and owners look for when vetting potential contracting partners varies according to their own risk tolerance, among other factors. Some vital information GCs and owners might be after include, among other things:

• • the contracting partner’s overall financial health, including a credit and payment history, and any lien filings or bond claims;

• • past safety performance, which includes looking at incident rates and OSHA citation history;

• • Experience Modification Rating (EMR), a figure that represents costs of prior injuries and future risk (a lower EMR correlates with lower worker’s comp premiums).      

But there’s more! Beyond looking at the above noted lagging indicators, to assess contracting partners more thoroughly, hiring partners should also be considering the presence (or non-presence) of key program elements and safety management systems–management systems that are critical to the contracting partner’s ability to deliver quality work safely.

Misconceptions of prequalification

As important as the contractor prequalification process is, the fact is it can be cumbersome and limiting. Many companies are more willing to tolerate risks and cut corners due to the enormous labor shortage constraining availability and limiting the pool of contractors and subcontractors. This might mean that some GCs and owners are increasingly relying on past partners with poor or below average performance records, simply because they are familiar with them.

It also means that past safety incidents or issues of regulatory non-compliance are often overlooked, as assessments are carried out incompletely at best—or, at worst, not at all. What’s more, a prequalification assessment, in the end, may not even drive the decision of who to hire.

But—as the saying goes—familiarity breeds contempt, and hiring partners should strive to grow their network of contracting partners by adopting an effective system that serves to both sufficiently vet and actively improve the performance of riskier contractors and subcontractors.