Subcontractor Checklist

Bart Adams, CPA, Shareholder - Auditing & Accounting   email | bio
August 2010



While the construction industry is awaiting a turnaround in the economy, it is essential that general contractors do not overlook issues that affect their profitability.  By developing a pre-qualification process for subcontractors, general contractors may be able to mitigate some risk that is inherent in the construction industry.  Below are a few objective criteria to consider when pre-qualifying a subcontractor.

Experience

The contractor's previous, relevant experience in completing similar work should be considered.  No one is well served if an inexperienced contractor is awarded the work and does not complete the work on time or at the quality level expected.  Also, double check that their license is current and in good standing.

Financial resources

If possible, obtain current financial statements that have been reviewed or audited by a reputable CPA firm for each potential subcontractor, as they can shed light on the subcontractor's financial health and their ability to complete work.  Key factors to consider are current assets and liability, equity, revenue, backlog, current number of projects in progress, contract size and available line of credit.

Other resources

Request the name of their surety company as well as their rating and their bonding capacity per job and in aggregate.  Request a letter of good standing from the surety indicating the number of years the relationship has existed, the subcontractor's largest bond and total bonding capacity.  Subcontractors should also provide general insurance information and the limits.  It is also essential that the subcontractor has the personnel resources, both in the field and in management, to complete the job.

References

Obtain and contact multiple references for each subcontractor.  Verify that they have received satisfactory work from the subcontractor.  Also ensure that the types of jobs performed are the same type of work and within a similar geographical region as the project up for bid.

Litigation

Make inquiries regarding current or past litigation with other owners and general contractors or any other claims and conflicts.

Safety

Ask if they have any OSHA or environmental citations within the past couple of years, and request a description and resolution for each citation.  Also inquire about work-related fatalities in the past five years and if any related lawsuits were filed.

The above list is not exhaustive but includes key considerations for pre-qualifying a subcontractor.  If you have any questions, please contact Bart Adams.