Risk reduction through contractor qualification

Construction by its very nature is different from most enterprises. It is rare in the business world where so many workers are engaged in difficult, hazardous work, with each working independently of the other. Proper understanding and implementation of a thorough contractor qualification process is one of the key components in helping to reduce potential exposures.

Through a process of evaluation, the ability of the contractor to perform the tasks required by the construction project can be assessed. The development of information regarding the capacity, capability, and competency of the contractor can reduce some of the uncertainties that normally exist in a project.

Implementation

Contractors may be qualified at two points in the contract delivery process-pre-qualification and during bid evaluation. The most effective is to conduct the assessment of a contractor as a pre-qualification step, prior to establishing a bidders' list. The alternative is to qualify potential contractors during the evaluation of their bid submissions.

The advantage of pre-qualifying bidders is that it simplifies the bid evaluation process. The bid evaluation team is permitted to focus only on the specific elements of the project, without being distracted by the other business considerations involved in the qualification process. It also increases the interest of the bidders, who realize they are competing against a more select group for the project.

The disadvantage of this alternative is the interval between the time the contractor is qualified and the time of selection. Qualifications can change during this period, requiring an updating of the data that was originally submitted.

Qualification during bidding adds additional time to the bid evaluation process. However, it provides more accurate data.

Regardless of the alternative selected, similar steps must be performed as part of the qualification process. First, a scoring form must be established to measure the contractors being considered. This form will establish what data is required from the contractors and how it should be submitted. If yes-or-no questions are asked, the contractors are more likely to provide answers that they feel put them in the best light. The answers need to be found in the data submitted. The key is to develop an objective scoring form that allows for fair comparison of contractor to contractor and contractor to the database. This will also permit ease of use, and allow anyone on the bid evaluation team to be able to conduct the assessment.

Factors to be considered

There are many factors to be considered once the decision has been made to conduct a qualification screening. The following list contains the most common factors that should be examined when conducting a contractor qualification screening:

• Company experience: previous work/types of projects; years in business; geographic territory/location; and references and previous customers.
• Financial status.
• Senior management: experience; tenure with firm; and division of responsibilities for the past 3-5 years.
• Company organization: structure; management processes; operational procedures; hiring procedures; safety and training programs; and overall company turnover.
• Current projects/backlog: how many projects; what size; where are they located; percentage of capacity being used; project status versus schedule completion; and quality/safety record.

Loss control representatives should be familiar with the qualification process for contractors. Through a thorough qualification process, potential problems can be identified and eliminated. This can result in a significant reduction of potential project exposures.

References

1. Deutsch, Kerringan, and Stiles. Construction Industry Insurance Handbook. New York, NY: Wiley, 1997.

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