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Contractor Vetting and Qualification

8 min
2/6

Key Takeaways

  • Eight criteria screen for qualified contractors.
  • Reference checking is the highest-value vetting activity.
  • Red flags include large deposits, missing insurance, and prices 15%+ below market.
  • The lowest bid is most expensive 8 out of 10 times.

Thorough vetting prevents the majority of construction management problems.

Process Flow

1

Vetting Checklist

Eight criteria: licensing, insurance ($1M GL, WC), 3-5 years experience, 3-5 references, portfolio, financial stability, communication quality, and capacity/availability.

Contractor Red Flags — Walk Away Indicators
Red flag 1: Demands more than 10% deposit upfront. Industry standard is 0-10%; anything above 25% is a major risk indicator. Red flag 2: Cannot provide proof of general liability insurance ($1M minimum) and workers compensation. An uninsured contractor accident on your property creates direct liability. Red flag 3: No written contract or uses a handshake agreement. Verbal contracts are nearly unenforceable for construction disputes. Red flag 4: Pressures you to pull the permits yourself. This shifts liability to you and may indicate the contractor is unlicensed. Red flag 5: Cannot provide 3+ references for similar projects completed in the last 12 months. Red flag 6: Offers a price more than 30% below other bids. NAHB data shows lowball bids are correlated with 3.2x higher rates of project abandonment. Red flag 7: Refuses to include a completion date with per-day liquidated damages in the contract.
2

Reference Checking

Ask each reference: on time? On budget? How were issues handled? Disputes? Would you rehire? Clean jobsite? Inspections passed first attempt? The pattern across 3-5 references reveals true operating style.

3

Contractor Red Flags

Disqualifiers: requesting >10% deposit, no license/insurance proof, no physical address, unwilling to provide references, pricing 15%+ below competitors, pressure for immediate decision.

The Low-Bid Trap
A bid 15%+ below competitors indicates scope omissions, corner-cutting, or financial distress. The lowest bid is the most expensive outcome 8 out of 10 times.

Key Takeaways

  • ✓Eight criteria screen for qualified contractors.
  • ✓Reference checking is the highest-value vetting activity.
  • ✓Red flags include large deposits, missing insurance, and prices 15%+ below market.
  • ✓The lowest bid is most expensive 8 out of 10 times.

Sources

Common Mistakes to Avoid

Accepting contractor insurance certificates without verifying they are current

Consequence: Policy may have lapsed; an accident on your property with an uninsured contractor creates personal liability

Correction: Call the insurance carrier directly to verify active coverage and require being named as additional insured

Skipping reference checks because the contractor has good online reviews

Consequence: Online reviews can be manufactured; direct references from similar projects provide reliable performance data

Correction: Call 3-5 references for projects similar in scope and size completed within the last 12 months

Test Your Knowledge

1.What is the single most valuable vetting activity for contractors?

2.A contractor bid 15%+ below competitors most likely indicates what?

3.What minimum general liability insurance should a contractor carry?

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