Prequalification: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
When Samuel Clemens uttered these words over a century ago I’m sure there was little, if any, thought on how prophetic they would be when describing todays prequalification dilemma in the construction industry.
Prequalification in construction today requires a continual assessment of partner capability. Companies can no longer determine qualifications solely at the beginning of a relationship and hope for the best. By doing so, the perceived “qualified” status of a partner may change due to any number of reasons, and those firms that check a qualified box at the onset will, as a matter of course, experience increased risk and ultimate loss.
Recently, I was asked to participate in several discussion forums at Sage Summit 2014 that focussed on prequalification in the construction industry. During these sessions, general contractor and specialty trade contractor participants were very interested in how to: better prequalify partners, collaborate more effectively, identify trends and spot opportunities. Companies are becoming more aware of the impacts an effective qualification and risk management practice can have on the success (and ultimate profitability) of their firm. The salient trait to accomplish each of these objectives was clear: take the “pre” out of prequalification and maintain a dedicated company objective of qualification through continual communication.
Qualification, as was discussed, is more than: financial ratios, credit ratings and lines of credit (although each of these aspects are components of a comprehensive analysis). Without effective tools, systems and individuals committed to continual communication, no qualification process would be viable. Communication is critical because it facilitates interaction among the elements of the construction risk paradigm. Risks must be communicated to the appropriate organizational levels so the risks can be analyzed and managed effectively.
As risks, markets and economic conditions evolve, so too should the practice of partner qualification. In todays markets, construction firms are confronted with: labor shortage, material escalation, backlog inflation and other market recovery risks. During these times, construction companies are becoming more susceptible to risk and need to evolve qualification practices and employ those during all levels of a construction project: from pre-planning through post construction.
Many firms in the construction industry employ some level of a qualification process to determine the competency of a company to perform construction services that meet the projects requirements. However, as backlogs grow and work days extend into nights, qualification practices seem to be turning into more of an automated, periodic process where someone checks a box and moves on.
This process creates a false sense of security as these firms believe they have done their diligence and “know for sure” the risks of working with a particular partner on the project. That thought process will inevitably create additional risk, after all: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
As risks in the construction market progress, firms qualification solutions need to involve continual communication to remain effective. Only then, will firms have sufficient insight to: better qualify partners, collaborate effectively, identify trends and pursue profitable opportunities.
A special thanks to the very distinguished panelists presenting with me at Sage Summit 2014:
Dennis Stejskal (VP – Sage Construction and Real Estate)
Dawn Naisbitt (CFO R&O Construction)
Joselin Martin (CFO of Hayles & Howe)
About the Author:
Adam Denno is the Product Strategist at JBKnowleddge, Inc. a technology solutions provider to the construction and insurance industries, and maker of the SmartBidNet, SmartReality, SmartCompliance and SmartInsight web and mobile software solutions. Adam has over 15 years in risk management and qualification underwriting experience in the construction industry and most recently served as the Senior Corporate Data and Risk Manager for JE Dunn Construction Company. SmartInsight, JBKnowledge’s latest solution, is the construction industry’s first non-exclusive, secure, collaborative qualifications data exchange platform on the web.