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For general contractors, developers, builders, and business owners, hiring a subcontractor is one of the greatest risks affecting business stability, profitability, and reputation. Delayed or defective work may result in subcontractor default or failure, which in turn may throw off the entire project and compound project costs enormously. The resulting repercussions may include loss of income, injuries, lawsuits, penalty fees and fines, bad reviews, and even the loss of a contractor’s license.
Prequalifying subcontractors is critical to managing the risk of using a subcontractor. The prequalification process gathers subcontractor information during the bidding process to assess financial resources, operational means, regulatory performance, licenses, and experience. So armed with this information, contractors, developers, business owners, and builders can mitigate the risk of legal violations, defective workmanship, and subcontractor default.
Subcontractor insurance requirements are incredibly important for risk management, but insurance alone won't protect you from financially unstable contractors who abandon projects halfway through. You need to combine insurance verification with financial prequalification to catch problems before they wreck your projects.
Unfortunately, not all prequalification methods are effective, and the same risk applies even when the prequalification is performed incorrectly, misunderstood, or ignored.
Inefficient prequalification methods may lead to poor decisions, including making bad bid awards to subcontractors that:
  Don’t have the financial resources to support the project  Don’t have the experience to complete the project  Have a poor safety rating  Have liens or lawsuits that could affect project completion  Hold an expired state license or industry certification
Don't just collect paperwork and hope for the best. Look at these critical risk factors:
  Safety performance: Check EMR ratings to see how many accidents they've had. A high EMR rating means frequent injuries that create liability problems for you.  Financial health: Review their balance sheets and cash flow statements for warning signs like mounting debt or shrinking cash reserves that signal they might default mid-project.  Insurance coverage: Make sure they have additional insured endorsements, waiver of subrogation, and primary and noncontributory coverage that actually protect you when claims happen.  Current documentation: Get certificates of insurance that show evidence that the subcontractor has the level of protection you need.
Different trades need different coverage, so check vendor insurance requirements by industry to set the right standards for electricians versus plumbers.
Manual, in-house prequalification using Excel spreadsheets to collect data is cumbersome and problematic. It creates extra and duplicate workloads, thus wasting staff resources. Expiry dates pass without notification, and red flags are missed without proper analytic feedback. For this reason, prequalification software that utilizes a database is a better means to reduce risk.
Additionally, in-house prequalification processes don’t properly evaluate vital financial information for a combination of reasons, including:
  In-house staff is unable to retrieve the information from the subcontractor  In-house staff doesn’t have the training, expertise or credentials to perform financial analysis  In-house methods can’t deliver a rational and confident go/no-go rating  In-house qualification relies heavily on previous working relationships instead of an objective, reliable scorecard
Manual processes also let insurance problems slip through that blow up into lawsuits later. Request certificates from vendors the right way to avoid coverage gaps. Compare what COI tracking costs between doing it manually and using software that alerts you before policies expire.
In general contracting, prequalification isn’t a one-size-fits-all solution. Your prequalification software must allow you to custom-tailor the criteria to fit the scope of each project. In addition to meeting the required insurance, safety, and financial criteria, each subcontractor will need to meet industry-specific certifications and state licensing.
Big construction jobs sometimes use wrap-up insurance that changes everything. OCIP vs. CCIP programs work totally differently than regular insurance, so you need different prequalification criteria for wrapped projects versus standard ones.
You'll also see a lot of ACORD insurance forms during prequalification. These are standardized certificates that make it easier to spot coverage problems when you're reviewing dozens of submissions.
The smartest contractors don't separate insurance checks from financial reviews. Compare prequalification software to find platforms that handle both instead of making you jump between different systems.
PreQual by Vertikal RMS works with CertFocus COI tracking to show you the complete picture. This integrated setup catches red flags that single-purpose tools miss, like when broke contractors skip insurance payments or when insured contractors hide their cash problems.
PreQual is a premium subcontractor, supplier, and vendor prequalification service with customizable forms and dashboards, reliable metrics, detailed analysis, and tier-rated criteria-specific scorecards on financial, insurance, safety, and corporate compliance performance standings.
We provide a customizable, efficient, complete, and secure prequalification solution that covers risk management from analysis to assessment. With PreQual, general contractors can set and change the criteria used to complete the qualifications and scorecard. Our analysts use the specified parameters to complete the qualifications, analyze the data, and determine the subcontractor rating.
PreQual helps contractors prequalify subcontractors in five simple steps:
 Step 1: Custom PreQual form Step 2: Subcontractor and vendor invitations to bid Step 3: Data collection Step 4: Analyze and score data Step 5: Deliver tier-rated PreQual scorecards
Contact us today to see how PreQual by Vertikal RMS can take charge of your prequalification tasks, with an easy-to-use interface and expert analysis to reduce your risk and prevent your exposure to subcontractor failure.
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