Contractor Prequalification

By Tabitha Mishra
Last updated: May 31, 2019

What Does Contractor Prequalification Mean?

Contractor prequalification refers to the information gathering and assessment process used to determine whether a contractor's capabilities, capacities, resources, management processes, and performance are suitable for a project. It is meant to gauge whether a contractor is able to complete the job successfully and skillfully.

When used by government agencies, the potential bidders on projects are audited to assess their prequalification standing before bids are accepted. Only those bidders that are prequalified will be invited to submit a bid

Areas typically covered by prequalification include:

  • Financial capacity and surety
  • Work history
  • Licensing and qualifications
  • Management standards
  • Regulatory, quality, safety, and environmental performance

Safeopedia Explains Contractor Prequalification

Prequalification laws are set at the state level. In North Carolina, for example, prequalification is prohibited when selecting architects, engineers, surveyors, construction managers, design builders, preliminary designers for design-build bridging projects, and private developers for private-public partnership contracts.

There is no set minimum contract cost for prequalification. Local governments are legally obligated to be uniform, consistent, and transparent in the application of contractor prequalification to all bidders.

Benefits of Contractor Prequalification

Prequalification is the preliminary stage that determines whether the contractor has the capacity to complete the job successfully. It is an important step in the contractor management process.

Some of the primary benefits of prequalifying contractors are:

  • Verification of the contractor, including their certifications and insurance
  • Risk mitigation
  • Creating a safer worksite
  • Reducing the risk of litigation

Not following the prequalification process can carry risks such as loss of business opportunities due to improper incident recording, poor safety performance, and regulatory violations.

Characteristics to Look for When Prequalifying Contractors

Prequalification is a great way to weed out applicants not suited for the job. It also helps contractors waste less time pursuing a prospect that may not work out and focus instead on achievable ones.

The process of prequalification is basically about gathering relevant information. Hence, when sending out a request it is best to have a checklist of what is being sought in a contractor, subcontractor, or supplier. Important factors to look for during the prequalification process include:

  • Information about the business – Look for any issues that the business has had with partners, stakeholders, and shareholders. Information regarding their proficiency in work can be gained from past customers as well as from reference letters. If the work requires the contractor to be licensed, it is important to verify that the business is licensed.
  • Financial stability and payment history – Information regarding their job history, type and size of contracts, and associated financial statements to check how the contractor handles jobs and payments. Verify that their working capital, accounts payable and receivable, and cash flow are similar to companies of a similar type.
  • Safety record – The experience modification rating (EMR) is a good way to gauge a company’s safety record. The score is also used by insurance companies to evaluate past costs of injuries and future risks. The information can be obtained from the National Council on Compensation Insurance (NCCI) who will provide the current and past rating and a risk history. OSHA 300 log record-keeping history and the company's safety procedures should also be checked.

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