
There are many factors to consider when selecting subcontractors, not just their price. To secure the best subcontractor for the job, contractors need to establish a strong prequalification process. This involves reviewing potential subcontractors closely throughout the selection process and narrowing the list down to the most qualified candidates.
Subcontractor prequalification may seem like additional work, but it's one of the best ways for contractors (or subcontractors hiring sub-subcontractors) to reduce the risk of hiring unfit businesses, which could then lead to project delays, safety concerns and quality issues. While the prequalification process may differ from business to business, the following are common strategies contractors can follow:
Contractors should take past work performance, references and qualifications into account when vetting potential subcontractors. Specifically, contractors will want to ask for references from other businesses that have worked with the subcontractor and ensure that those businesses were satisfied with the final product. Subcontractors must also be a good fit for the project and have the skills, resources and bandwidth necessary to perform high-quality and efficient work.
It might sound simple, but contractors should be on the lookout for obvious red flags when examining a subcontractor. To identify common issues with unqualified subcontractors, businesses should review publicly available information related to lawsuits, bankruptcies and customer complaints. Contractors can also learn a lot about a subcontractor by reviewing their standing with trade organizations, the Better Business Bureau and similar entities. Finally, subcontractors that are consistently difficult to get into contract with or don't submit a bid on time should raise some red flags.
In the event that a subcontractor performs unsafe work or causes an accident on the job, work can stall, costing the contractor time and money. During the prequalification process, contractors should determine what policies and procedures a subcontractor has in place to ensure the safety of their workers. They should also check a subcontractor's safety record and investigate any available Occupational Safety and Health Administration records or workers' compensation information (e.g., experience modification rates).
Subcontractors need to have the financial resources necessary to secure supplies, pay their employees on time and complete a project. To evaluate their fiscal stability, contractors should request two years of financial statements. The information from these financial statements can help contractors determine if a firm is fit to handle the demands of their project.
Contractors should acquire certificates of insurance from subcontractors that confirm the proper insurance with sufficient limits of liability in place for the duration of the project. Without these insurance protections, a contractor could be held financially responsible for issues with the subcontractor's work that may arise before, during or after a project's completion.
Once a contractor has selected a qualified subcontractor that meets their needs, they should secure a written contract that details:
Simply put, a strong written contract will protect against poor or incomplete work. It's wise to review it alongside an attorney to identify a full set of requirements.
The insurance industry often applies the following five Cs when underwriting risk: character, competence, capacity, capital and coverage. Contractors should consider applying those same principles when selecting subcontractors.
Prequalifying subcontractors helps contractors select the best candidate for the job. This ensures projects run smoothly and provides contractors with some much-needed peace of mind.
Additional information on risk transfer and other commercial insurance topics is available for appointed agents and policyholders through MyLossControlServices.com. If you're not an appointed agent, more risk transfer resources are available through IRMI. If you're an agent interested in growing your commercial book of business, please go to nationwide.com/agents.
CMO-1151AO
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