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Why is “Prequal” a Bad Word?

Thomas Kellogg

Updated: Aug 13, 2024

Construction management is the product of thousands and thousands of intertwining processes and the efforts of hundreds (if not thousands) of people carrying them out. While most of these processes are essential, some can feel like mere box-checking exercises. A checklist tells us it must be done, so it is done.

 

The “prequalification” process is often one of those boxes. It is a box which has demanded as speedy a check (or no check) as possible so that the procurement process can move to the next step. This pressure has created a dangerous condition in which speed is prioritized over quality, and consumers of the information are unable to confidently trust the outcome.

 

The “pre” in “prequalification” or “prequal,” has created a perception amongst many that this box, once checked, allows, or disallows a slew of decisions. The word has encouraged the use of fast, do-it-yourself processes and tools, and a culture in which broad annual risk assessments have taken favor over individual assessments of individual risks. The sooner we can eliminate “prequal” from our vocabulary, the sooner we can improve our relationship with default risk.

 

How did we get to this point where we are so focused on the speed with which we check the “prequal” box that we have lost touch with its purpose? Speed has become a critical component of risk analysis in construction, which is not necessarily bad. With every passing year in our industry, there is more information, more decisions, and tighter deadlines.

 

Our decision-making process has had to accelerate to accommodate this ever-increasing influx of data and naturally, we try to boil decisions down to “Go’s” and “No Go’s.” In doing so, however, our analysis has become abbreviated and increasingly rigidly structured. What our industry tried to gain in efficiency, it has lost in quality and meaningfulness of analysis. In this pursuit, the scales have tipped so far in favor of speed that many stakeholders are focused on whether the “prequal” task was completed or not, rather than the content generated by the analysis.

 

To try to accommodate this need for speed, and in addition to a qualification of risk like “high” or “B+,” many companies have adopted a dollar-value limiting system in which Subcontractors are “prequalified” up to a certain amount, without respect to changing conditions between analyses, or the particulars of each project, or micro market conditions. Of course, it is much easier to digest a “Yes” or “No” than it is to assess ten or so factors that may put the success of a specific Subcontract at risk, or the ways in which one might prudently mitigate them. However, when we resign ourselves to the convenience of green-light-red-light type of “prequal,” we ignore the changing project, Subcontractor, and market dynamics. Instead, if we commit to a culture of thorough due diligence, we might spend more time and energy, but we have earned visibility into that which imperils our projects and can better design and employ the appropriate safeguards.

 

The word “prequalification” itself is a large part of the problem. When we say “prequal,” we are suggesting that this is an exercise completed before a procurement decision, which of course it is. However, the word suggests nothing about due diligence performed during the Subcontract’s performance, nor does it suggest that the exercise is performed in the context of each individual risk. “Prequal” suggests that it is done before (“pre”) Subcontract commencement without regard for how any changing conditions during or after the Subcontract performance might affect the appropriateness of a Subcontractor for a project.

 

Let us examine an all-too-common example of how the word “prequalification” hurts projects, bottom lines, and businesses. One of the biggest threats to a Subcontractor’s success on a project is unsustainable growth – an inability to effectively manage a project or perform due to excessive resource constraints. The Subcontractor absolutely cannot shoulder all, or even the majority, or the blame here. Every company is in the business of delivering great products to their clients, often repeat clients, and construction Subcontractors are no different. When a Construction Manager/General Contractor (CM/GC) has a “prequal” box checked and consequentially awards a Subcontractor as many times as they like, the CM/GC begins to run the risk of “loving them to death” or putting them on the wrong project at the wrong time.

 

Subcontractors are focused on client service – they are strongly disincentivized to tell a client “No” when there are so many competitors in a space. Rather than put the Subcontractor in this position, the CM/GC must prudently manage these expectations, to support the sustainable growth of a Subcontractor’s business. Although it can be resource intensive, the CM/GC should be acutely aware of the monthly demands of each project, the appropriateness of each project for each Subcontractor, Subcontractor leadership and labor availability at the time of each project start, changing project schedules, or the other work the Subcontractor may be taking on. Since conditions change constantly in a market and in a Subcontractor’s business, and since the characteristics of one project can be drastically different from the next, this analysis must be performed in advance of each decision, rather than in advance of all decisions.

 

In the absence of thorough and constant due diligence, everyone loses. High-speed “check the box” culture and a reliance on the principles of “prequal” erode decision-makers’ confidence in conclusions and unfairly put Subcontractors in the wrong positions. Instead, our analysis should be specific to the subcontractor, for a specific subcontract, on a specific project, at that time. By changing our relationship with default risk and by reassessing each risk with each changing condition, we can stop checking boxes, and start focusing on risk mitigation strategies that are critical to each project’s success.

 


 


 

Unrelated fun fact: In 1911, the Mona Lisa was stolen from the Louvre in Paris by Vincenzo Perugia who hid it in his apartment in Florence, Italy. It was not recovered until December 12, 1913.

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