I know what you are thinking, but when it comes to performing due diligence, the answer is truly the opposite. In today’s economy, general contractors and other organizations must ask for more rather than less information regarding the financial and moral stability of their subcontractors, vendors and suppliers. In the end, your firm’s reputation and bottom line are at stake. Before granting that subcontract or purchase order, make sure you know as much as you can about your subs. Before grating that subcontract, follow this tip: You can’t ask for too much information.
In the November/December 2011 issue of Construction – The Magazine of the Associated General Contractors of America, one of the cover stories is titled “Managing Sub, Supplier Risks”. The article itself, titled “Due Diligence” gives detailed insight from AGC council members, insurance service providers, and General Contractor representatives who all relay a very clear message: There are an increasing number of subcontractors and suppliers who are not in business today given the economic client, and that number doesn’t look like it will decrease anytime soon. This unfortunate trend has caused a need for General Contractors to perform stricter due diligence not only larger subcontractors, but all subcontractors and suppliers.
I have said it before, but knowing is half the battle. Choosing to not ask a subcontractor or supplier to provide your organization with their sensitive information such as financial statements, project backlog or a bank credit reference letter out of fear of how they will react is just not an acceptable reason to roll the dice and hope for the best. Not knowing fully what type of business you are contracting to could lead you to unknowingly contracting to a sub who you would definitely reconsider if you knew more of the facts. At Assurance, we find business owners who get in the habit of letting a business fail, only to start another one with a “clean slate”. We also see businesses that rack up tax liens or who have a history of late-paying their bills. These types of findings throw up those red flags you need to be aware of in order to make the proper decisions when it comes to who your grant your subcontracts to. Once you know everything, you can then work more effectively with a subcontractor who maybe had a stroke of bad luck themselves, but are on their way to recovery.