Construction Prequalification: When Project Paths Go Through Electronic Gates
Third-party prequalification platforms that gather key bidder information irritate some
There have never been so many digital tools available to determine the fitness of a contractor or subcontractor and to reduce the work involved for companies to insure getting the right bidders.
With new electronic prequalification platforms, and more outsourcing of an essential risk-management process, have come fresh issues that displease some bidders. They include fairness, the work and cost of submitting information and the ability to communicate with a real person when a third-party platform collects the information.
Rich Mannarino, estimating vice president for Saxonburg, Pa.-based Brayman Construction Corp., a heavy civil and geotechnical contractor, said his company relies on surety bonds to solicit bids from subs on larger projects. Otherwise, Brayman doesn’t rely on prequalification platforms to check bidders.
And while the firm will submit information to prequalify for work it hopes to win, it won’t do so if a fee is required—an issue other critics have complained about.
“The platforms that are out there that charge annual fees for contractor prequalification need to cease,” Mannarino says, responding with a pointed “no” when asked if he found the platforms helpful.
Subcontractors have similar grumblings.
Richard Bright, chief operating officer of the American Subcontractors Association, says his members want to embrace new technology, but the evolution of many different prequalification platforms, and the fee required to enter information into some of them, are problematic. With so many different systems, there is “no general efficiency gained” for his subcontractor members, he says.
If ASA’s members are “paying to get paid, it’s not good,” he adds.
Others emphasize the helpful features in the platforms. Craig Montz, an industrial construction specialist at Miron Construction Co., has a generally positive view of the platforms to which his company submits information.
He sees strengths and weaknesses in the different features, but he especially likes one that helps provide client-specific online safety training. Quick uptake and approval of submitted information, within hours, is another strength Montz likes. Document reviews or approvals that take days are a turn-off, especially if the approval "never" arrives, he says.
To be sure, prequalification is the same as it has been for years. Many general contractors require prospective subs to fill out PDFs that include finance, safety, insurance and work history information. Contractors can consult prequalification questionnaires available from standard contract form publishers for ideas about what to ask. S
State and federal public works agencies and many private owners that build regularly are experienced at collecting bidder information in electronic formats, as are sureties.
That much said, prequalification has changed with digital platforms that host software and provide access via the internet. The bigger the project, the more likely that owners and prime contractors will require prequalification.
Better Job Screening Bidders
Pete Wiggins, business development vice president of First, Verify, based in Columbus, Neb., says there are many good reasons to prequalify using his company’s tools. By simplifying the task, companies will do a better job in screening bidders.
“Obviously, if they work with companies that work safely and have the required insurance, they are mitigating their risk,” he says. “The real issue is whether the client company wants to do what it can to protect their people and property from the actions of the contractors they hire.”
First, Verify owns and hosts the software used online.
In general, the information collected usually includes basic financial information, past projects, credentials of key staff and safety data. Some platform ask about prior terminations or defaults.
But some third-party electronic platforms drive applicants crazy, according to users, just by taking so much time, and forcing bidders to gather the information needed to input into the platform. Various consultants are available who will enter information for contractors into prequalification platforms.
Insurance broker Joe Tiernan, a shareholder and senior account executive with Holmes Murphy, says he has seen one global vendor management system, which he declines to identify, that requests six or seven different safety plans and documents from a contractor. The volume is beyond reason, he adds, noting that his brokerage performed the data entry tasks as an added service for clients until 2014 when the work became too labor intensive.
According to Tiernan, any mention of "that one particular global vendor management system" with the exorbitant request "generally is followed by a slew of curse words” from his clients or prospective clients “due to the onslaught of information [generally] required upfront and the many questions that follow, and the cost one incurs to use it.”
While some prequalification platforms predate widespread use of cloud storage, all make use of the Internet’s strengths in gathering, organizing and making information more accessible. The user interface and features allow owners and prime contractors to manage and manipulate what they gather.
First, Verify’s system for prequalification was developed by its founders two decades ago, before the firm was created. It targets companies that have grown beyond the use of their own small in-house system. When in-house systems lack a centralized database, the work is often left to project managers and purchasing teams.
Prequalification charges to the contractor range from a low of $175 to more than $10,000 annually depending on the service used, Wiggins says.
Divulging surety and insurance information is standard. “If a client company is smart, it not only requires set levels of coverage but also wants to see additional insured language with policy endorsements, waiver of subrogation and other endorsements,” Wiggins says.
To what extent are bidders judged by formulas and algorithms?
“I can’t speak for other companies, but I do suspect that some of that exists," Wiggins says. "Our company uses individuals to review the information and ask for additional detail where appropriate,”
PipelineSuite, a 17-year-old bid-management software company, also provides customers a subscription-based prequalification platform accessed on the Internet with different tools and tiers determining the cost. President Rick Dill started the Orange County, Calif., firm in 2002, adding ten years later an automated prequalification module, pipelinePreQual™.
Another company, Appruv, is the prequalification service provided by SMI Safety, an online contractor and supplier staffing, auditing and consulting company based in Omaha. Its prequalification service is via cloud-based web applications.
The amount of information required by the platforms ranges from relatively little or none to three years of financial information, so a bank-style credit analysis can be done plus multiple safety documents, such as the federal OSHA 300 forms.
Whether a consultant is needed to assist a company to complete the process depends on the platform, says Chris Black, Appruv’s director of operations. Some platforms can be complex and overwhelming for a company to complete, and consultants are relied on to make the entries. he says.
“With some of the bigger prequalification platforms out there, this can be the case,” Black says. “But as this industry grows and diversifies, we are seeing platforms that are more tailored to meet client or owner requirements that rely on the expertise of industry experts and the human component. This allows for flexibility as opposed to unrealistic rigid criteria."
He adds that "even though technology is a large part of every prequalification platform, the myth that platforms are made up entirely of algorithms and code is not accurate.“
Do third-party prequalification platforms enable a rejection to be appealed, as some state agencies do?
“That depends,” says Miron’s Montz, looking at it from the view of a bidding contractor. “Usually you can work through a customer representative to get items address or negotiated. The sites that do not allow us to talk with the customer can be challenging to get modifications to documents completed."
Statistical measures usually determine what Montz calls “the baseline for immediate approval.”
But variance from the baseline may require further conversation with the platform’s customer service representative to make a connection to the owner.
“Appruv has been helpful to me in the past to get this accomplished,” says Montz. “I have always had access to speak to a customer service representative in person. Having access to a person is a big deal.”
He says baseline safety metrics used by platforms have improved how companies manage safety and nurture their safety cultures.
Systems can be mutually beneficial to bidders and those seeking bids, with some advantages also for subs current busy markets.
“I've talked to a couple of general contractors that laughed when I asked them if they always prequalify their subs....” says PipelineSuite’s Dill. “They said sometimes the shortage of subs is so bad they are lucky to find one that will do the work without filling out any prequal form. So the GC has to roll the dice and accept the risk.”