Prequalifying Subcontractors
by Alison Neumann

Prequalifying Subcontractors


General contractors face many uphill battles when it comes to getting the job done right.  Working as a general contractor on a project comes with several challenges, such as calculating the rising material and labor costs vs. job profitability, competing for the best employees in a depleted workforce pool, and selecting the best subcontractors to hire.

Naturally, general contractors prefer to work with subcontractors they already know and trust and whom they’ve worked with on prior jobs.  However, that might not always be possible.  The general contractors might be managing a project in a new area, or possibly all of their regular subcontractors are busy with other projects.

The best way to hire an unknown subcontractor is to prequalify them prior to signing a contract.  This will establish the qualifications and expectations that are required of subcontractors, including preparing their insurance agents for the coverages that may be required from their policies.  This may also give the general contractors a pool of subcontractors to choose from who are actively looking for work.

Topics general contractors should address in their prequalification agreements include the following:

  • Project experience and appropriate licenses for the nature of work the subcontractors perform.
  • Three to four references from previously completed jobs, including former general contractors, clients, and financial institutions.
  • A copy of the subcontractors’ current certificate of insurance, including general liability, auto liability, and workers’ compensation. Subs will need to have the ability to list the general contractor as additional insured and include primary and non-contributory coverage for ongoing and completed operations on their general liability.  It is standard practice to request a waiver of subrogation on the general liability and workers’ compensation policies. Also, many require a 30 day notice of cancellation to confirm the insurance coverage is in good standing throughout the project.  Several GC’s work with their insurance agents to include a Sample Insurance Certificate in their agreements as a visual tool for what is required.
  • The subcontractors’ legal history, in order to see if they have any outstanding litigations or liens.
  • A review of their safety culture including documents such as OSHA 300 logs and Experience Modification Rating for the past 3 years.
  • Their financial standing, such as a bank reference letter.

If the project is bonded, general contractors will want to confirm the subcontractors are able to be bonded back if necessary.  This would indicate the sub has strong financials.  Requiring a surety bonding capacity letter may also be part of the prequalification agreement.

All of the above may sound like a lot to require of subcontractors, but general contractors who have a solid prequalification agreement in place are the most successful in finding qualified subs.  Taking the time and effort to thoroughly vet the people they agree to do business with ultimately protects their business.

To find out if you have the proper insurance coverage you need or for any insurance inquiries, contact your agent today.

DISCLAIMER: Coverage for the exposures mentioned in this blog post is dependent on the specific policy language of each individual policy and adjuster review determining the cause of loss.

References:

Herlong, Keri. 2023, May. 4 Tips to Help Prequalify a Subcontractor. Acuity Infocus Magazine 2023, Issue 5, page 12.  https://indd.adobe.com/view/44b3feba-dc08-4f5e-8972-95ff1068d231

https://www.constructconnect.com/blog/6-keys-to-subcontractor-prequalification-success

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