When it comes to evaluating construction risk, looking at subcontractor backlog is crucial. In past posts, we’ve already discussed backlog as one of the key indicators of a successful qualification workflow. Without a thorough understanding of backlog data, general contractors are left guessing if a subcontractor is stretched too thin, might struggle to meet schedule commitments, or is at a higher risk to default.
To help, here are three ways you can improve how you evaluate subcontractor backlog to make sure you’re leveraging the right information to effectively mitigate risk.
Set internal total limits
It’s easy to get comfortable working with specific subcontractors. Over time and through successful projects, you develop a relationship, trust, and an expectation of their work quality. But data from SDI carriers also tells us that a majority of subcontractor default claims actually come from long-standing relationships. With that in mind, one of the biggest challenges general contractors face is making sure they are tracking and managing the work they award to their favorite subcontractors.
Tracking a subcontractor’s internal backlog against a pre-set internal total limit is a practical way to mitigate this risk. It ensures that before any new award, your team is aware of how many projects the subcontractor is already engaged in, and the total outstanding balance of contract work yet to be completed.
Best-in-class general contractors leverage the prequalification process to set limits annually. Not only do they use financial and operational metrics to determine subcontractor limits for a single project, but they also set total internal limits. In most cases, we observe single to total limits being set on a range of 1:1 to 1:5, depending on the variety of other risk factors like financial health and aggregate backlog position.
Integrate with ERP and accounting systems
Making the process of tracking internal backlog easy requires some configuration of internal systems. The best way to do this is to integrate your prequalification platform with your enterprise resource planning (ERP) or accounting systems (such as SAP, CMiC, JD Edwards, Viewpoint, and Sage). Without these systems seamlessly transferring data to one another, risk teams still need to reference several systems in order to have the information they need to appropriately complete a qualification review.
Create an automated review process
After you’ve created internal limits and integrated with ERP/accounting systems, you should automate the review process to make your prequalification workflow streamlined and consistent. With TradeTapp, general contractors can configure an automated task to import backlog data from their ERP system, and integrate this information onto subcontractor risk profiles. This replaces the need for general contractors to email files or manually enter data.
Once internal backlog data is pushed to TradeTapp, automatic alerts are triggered to ensure the subcontractor is still within the internal total limits set. If the subcontractor is considered for an additional project, TradeTapp’s approval workflow will incorporate the prospective award value as potential new backlog when determining the risk of any new project. In effect, this creates checks and balances internally so that subcontractors are not awarded projects in excess of their internal limits.
Every process can be improved, and evaluating subcontractor backlog is no different. Set your projects up for success by taking the time to set internal total limits, integrate with ERP/accounting systems, and create an automated review process. These simple improvements make backlog data actionable, further reducing your preconstruction risk. Streamlining this and other parts of the process make prequalification technology a must for general contractors today.
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