Expert Commentary

Contractor Qualification

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.


Construction Safety
August 2000

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.


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

Like This Article?

IRMI Update

Dive into thought-provoking industry commentary every other week, including links to free articles from industry experts. Discover practical risk management tips, insight on important case law and be the first to receive important news regarding IRMI products and events.

Learn More



Navigation

Social Media

User ID: Subscriber Status:Free