The success of any construction project depends largely on subcontractors performing the work, and more particularly their qualifications, experience and financial wherewithal. Although word of mouth and reputation goes a long way, it’s important for any contractor to perform due diligence when considering subcontractors with which it does not have an existing business relationship. Going in blind can be a recipe for disaster if the subcontractor simply doesn’t have the skill and/or financial wherewithal to complete the project.

The following checklist may serve as a helpful guide for any contractor considering whether to engage subcontractors for a project. To the extent the contractor needs assistance in performing any of these steps, an experienced construction attorney can help navigate this process.

PRIOR BUSINESS HISTORY

1. The initial RFQ should expressly require the applicant (subcontractor) to identify by full legal name any and all prior entities in which any principal or owner of the applicant has ever held a director, officer, management or ownership position (whether or not a construction related entity) and identify the state in which each such business was registered (qualified) and which licensing board licensed each such business.

2. The RFQ should expressly ask if any business responsive to number 1 (or the applicant itself) was ever (a) sanctioned, disciplined or had its license suspended or revoked, (b) a party to litigation (identify case and court in which case was or is pending), or (c) sought bankruptcy (identify court in which case was or is pending).

LICENSURE STATUS/QUALIFICATIONS

3. Once this information is received from the applicant, research licensure status and bidding limitations of applicant with the Licensure Board in the state in which project will be performed and request copies of complaints, investigations, license suspensions and revocations with each such Board.

4. Once this information is received from the applicant, research licensure status and bidding limitations of the applicant with Licensure Board in all other states identified in which the applicant claims to be licensed as indicated in response to the RFQ and request copies of complaints, investigations, license suspensions and revocations with each such Board.

BACKGROUND CONFIRMATION

5. Request names and contact information of all general contractors and owners (to the extent the subcontractor has served as a general contractor) with which the principals and the applicant entity have worked in the past eight years, whether in the name of the current applicant or other entity in which any principal or owner of applicant has ever held a director, officer, management or ownership position.

6. Once this information is received, call the general contractors and owners identified and perform due diligence on the applicant by inquiring whether such entities were satisfied with the work performed by the applicant and, if not, what specific problems the general contractor or owner encountered with the applicant. The contractor should also perform the specific due diligence identified below.

LITIGATION/CRIMINAL HISTORY

7. The RFQ should expressly inquire whether the applicant or any of its lower-tier contractors have ever filed a lien on any project on which it has supplied labor, materials, equipment or services. If yes, identify project location (county and state), date lien asserted, name of general contractor and the owner of project on which lien asserted.

8. Perform due diligence on information received in response to number 7.

9. The RFQ should expressly require disclosure of all litigation history of applicant in prior ten (10) years, and for all entities in which any officer, director, owner or principal of applicant has held any ownership or management interest or position. Perform a litigation history background check to verify the responses.

10. Perform due diligence on information received in response to number 9.

11. The RFQ should expressly ask whether any principal, manager, officer, director or owner of the applicant has ever been charged with, plead guilty or no contest to, or convicted of a felony in any state. Request details in terms of offense, state and county in which felony was prosecuted, date convicted, and penalty.

PRIOR CONSTRUCTION HISTORY

12. The RFQ should expressly ask about the largest project applicant has ever performed, where the work was performed, when the work was performed, the name of the owner and general contractor, and whether project was successfully and timely completed. The contractor should also follow up with the general contractor/owner on the project identified to determine whether the subcontractor performed the work in a satisfactory manner.

13. The RFQ should expressly require listing of all projects on which applicant has provided labor, services, material or equipment in the prior eight years, dates of work, where each such project was located, and the names of the owner and general contractor.

FINANCIAL WHEREWITHAL/LITIGATION AND BANKRUPTCY HISTORY

14. Contractor should run a Dunn & Bradstreet report (or conduct similar financial research) on the applicant.

15. The RFQ should request audited year-end financial history for the past four years.

16. The contractor should run a credit check after getting written authorization from applicant in the RFQ.

17. The contractor should independently research whether subcontractor or any of its principals have filed for bankruptcy in state of incorporation and prior businesses in which principals have held ownership.

18. Call prior employers of principals of the applicant to determine if eligible for rehire and/or to get as much background information as possible.

19. Run a criminal background check on principals of applicant.

BANKING

20. Request identity of the banking institution for the applicant, and consider seeking permission to obtain confirmation of funds in accounts.

MISCELLANEOUS

21. The RFQ should include the proper language so as to allow the contractor to run credit and background checks.

22. The RFQ should include a statement above the signature line attesting that “With authority on behalf of [name of applicant], I have provided complete and truthful answers to the questions in this RFQ.”

Performing due diligence by following the steps set forth in this checklist may be somewhat burdensome on the front end, but it can save a lot of potential headaches on the back end. And, by making it a part of a routine procedure, the process will necessarily become streamlined and like second-nature as it is applied it to more subcontractors over time.