Contractor Qualification
August 2000
The first step in a sound construction risk
management program is the selection of a qualified contractor. This article
provides a methodical process of evaluating and comparing contractor qualifications.
by Ron
Prichard, P.E. Ph.D.
Aon Worldwide Resources
Construction is becoming increasingly complex. Ever-growing demands from
clients, competition, and regulatory agencies create added burdens that must
be managed in a cost-effective manner. These challenges present a paradox: few
of these demands directly contribute to the physical construction of the project,
however, a failure to properly manage them can lead to problems for the entire
project and construction team.
Thus, for a contractor to be successful-a critical element for success on
any construction project-the contractor must be able to properly manage its
business as a business. Today, contractors must be businesspersons first and
builders second.
Fortunately, there are objective means to gauge the ability of a contractor
to properly manage the business aspects of the construction project. Through
a methodical process of evaluation, it is possible to measure a contractor's
ability to make multiple decisions, weigh the results of the decisions, and
draw reasoned, reliable conclusions from the information. Determining the contractor's
capacity, capability, and competency diminishes uncertainty, inspires confidence,
and ultimately reduces risk.
When To Qualify: Prequalification versus Bid Evaluation
Contractor assessment can take place as a prequalification step, prior to
establishing a bidders list, or during the evaluation of bid submissions. The
former is more effective and actually simplifies the bid evaluation process
for all parties. Facing the owner's scrutiny regarding its competency to handle
the business aspects of the operation during prequalification allows the contractor
to focus on the specifics of the construction project once it has passed through
prequalification and been short-listed. This also allows the owner's bid evaluation
team to focus only on the specific elements of the project, without being distracted
by the other business considerations.
The disadvantage of assessing the contractor's business acumen during prequalification
is that time will necessarily pass between when the contractor is qualified
and when it submits its bid. Things within the firm could change. This problem
can be corrected with an update of the qualification data during the bid.
The problem with performing contractor assessments during bidding is that
it adds steps to the bid evaluation process. It requires evaluating both the
contractor's business competency and its qualifications as a builder in the
same process.
Performing the Evaluation
Regardless of when the evaluation takes place, it is important to be thorough
and consistent. At present, contractor evaluation is often a hit or miss proposition,
performed by industry professionals using their accumulated experience and judgment.
There are variations in the amount of effort expended in the process, often
without an understanding of how such variations influence the project outcome.
The first step in evaluation is to examine the contractor's system for handling
project information regarding work tasks. Only if a soundly based project information
management system is employed should the safety record be examined. The contractor's
approach to safety and what actions it takes to achieve desired results should
be closely scrutinized.
There are many other factors to consider during the qualification screening.
The following list includes most of the key components that should be examined
when conducting a contractor qualification.
Performing the Evaluation
- Company Experience
previous work
years in business
geographic territory
previous customers
- Company Organization
structure
management processes
operational procedures
hiring and training programs
turnover
- Quality
- Safety
- Senior Management
experience
tenure with firm
division of responsibilities
- Current Projects/Backlog
number, size,
and location of projects
percent of capacity being utilized
status and expected completion
- Financial Strength
It is important to consider how to collect the data necessary to perform
contractor evaluations. If yes/no-answer questionnaires are used, contractors
will be tempted to answer in a way that puts them in the best light. For instance,
one commonly used questionnaire asks contractors if safety is a priority in
their business. A review of several hundred responses to this question revealed
that not a single contractor answered "No," while actual work performance indicated
that for many, "No" would have been the more accurate response. Thus, this type
of question is of no value.
The key to a successful methodology is to develop an objective form, from
which a database can be built that allows for fair comparisons of contractors.
The form should be easy to use. Anyone on the bid evaluation team should be
able to conduct the assessment and compare the results.
Obviously, owners must carefully analyze the data submitted by contractors.
It is not prudent to ask the contractor to provide answers about the viability
and completeness of its program and then simply rely on those answers when drawing
conclusions about the effectiveness of its efforts. Objective information needs
to be obtained and, more importantly, mechanisms for verifying the accuracy
of the data need to be developed before any conclusions can be drawn.
A success reference must also be established to have some objective point
against which the contractors' performance can be evaluated and compared. This
normally is a scoring form used to judge the responses of the contractors being
considered.
If contractor evaluation consists of simplistic questionnaires, without verification,
constituting the sole basis for making judgments about contractor capabilities,
little is gained at great expense. This process only creates the illusion of
a fair and objective evaluation at an unnecessarily high cost, since all the
effort of asking, answering, and reviewing the questions is merely an exercise
in futility.
Conclusion
Prequalification is an essential step for any owner to take, and, in keeping
with the Pareto Principle (80 percent of a firm's revenue comes from 20 percent
of its customers), it is a step that has implications beyond the immediate connection
to safety. The same management skills that are essential for the delivery of
a high-quality construction project are just as essential to an exemplary safety
record. This has been demonstrated by CII research and the CICE study. Control
of information, proper scheduling, selection and training of personnel, and
maintenance of equipment are among the things that go into management of a construction
project and are some of the same factors that contribute to a safe worksite.
The single most important step that can be taken to ensure project success
in safety is to prequalify and select only those contractors who are fully qualified
by virtue of their safety programs and performance. A good safety record reduces
the cost of construction and helps to support the desired attitude toward quality
and productivity.
The goal of construction is to deliver a completed project that serves the
intended function. Anything in the construction process that does not contribute
to this goal is a potential obstacle and adds unnecessary risk to the project.
By assessing the capability and capacity of a potential contractor through a
methodical evaluation process, potential issues that could cause trouble on
a project can be identified or eliminated. Comprehensive contractor evaluations
conducted prior to selection can significantly reduce the risks faced by a construction
project and can prove the difference between project success or failure.
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