Last edited 05 Feb 2014

Due diligence when selecting contractors or subcontractors


[edit] Introduction

The financial failure of a contractor or key supplier can be catastrophic to a project.

To reduce exposure to risks it is important to have a thorough grasp of both the capability and financial status of a prospective organisation before appointing them.

Reliance on credit checks involving accounts filed at Companies House can be useful, as can assessments of past track record, but they have their limitations. It is important to understand where the organisation might be exposed to risks through commitments to, or reliance on, third parties, and how secure and well resourced they are given the size of the proposed contract and their other commitments.

The following issues should be evaluated against the proposed scope of works to be undertaken:

[edit] History

  • Track record and appropriate references.
  • Audited accounts.
  • Tax returns.

[edit] Current position

  • Main customers (each expressed as a percentage of total turnover to reveal where there may be significant dependencies).
  • Current contracts in progress including project programmes and values (to assess where there may be significant overlaps that would put the organisation under pressure).
  • Staff resources and CV’S of senior management.
  • Organisation chart.
  • Current debt position with debt expiry dates.
  • Current direct labour resource, including comparisons with previous years.
  • Current subcontractors and suppliers.
  • Details of current warrantees, guarantees, encumbrances, liens, performance or on-demand bonds or charges held by third parties.

[edit] Future position

[edit] Legal position

[edit] Technical capability

  • Examination of past or current similar work.
  • Competency, qualifications and certificates.
  • Subcontractor and supplier capability.
  • Building Information Modelling (BIM) capability.
  • Overall capacity to undertake the work.
  • Disaster planning in the event of a catastrophic occurrence such as fire.

[edit] Other indicators

[edit] Find out more

[edit] Step guidance on appointing a contractor:

[edit] Related articles on Designing Buildings Wiki