Improving Security of Payment Building and Construction Industry

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10. Prequalification Page 125National Public Works Council IncImproving Security of Payment in the Building and Construction Industry10.5.2 Typical Prequalification ProcessThe following chart sets out a typical process for a prequalification methodology:Prequalification Criteria (PQC) frameworkestablished by Principal depending uponeligibility to tender, size of project or otherobjective↓If Prequalification is not project specific,information and process is revised beforespecific project appointment is made↓Head Contractor provides information inaccordance with PQC requirements↓Information provided must be sufficientlycurrent to enable verification andassessment↓Prequalification assessment undertakenincluding analysis and verification of PQC↓Extent of evaluation procedures based uponrelative risk to Principal↓Acceptance/Rejection of Head ContractorFor the purpose of describing the fundamentals of a sound prequalification process,this Consultancy focuses on minimum acceptable levels which Contractors should
10. Prequalification Page 126National Public Works Council IncImproving Security of Payment in the Building and Construction Industryachieve before they are considered for a project. Clearly, prequalification systemswhich focus on awarding projects to top performers in the Building and ConstructionIndustry and those with mature QA systems should highlight Contractors who morethan fulfil these basic requirements.10.5.3 When to Apply PrequalificationGiven the potential range of project values and associated risks within the AustralianConstruction Industry it is logical to consider a tiered approach. Based on CIDAguidelines and taking into consideration the typical financial reporting systems ofsmaller and larger Contractors, appropriate tiers could be as follows:Project Value:< $250,000$250,001 - $1,000,000$1,000,001 - $5,000,000$5,000,001 - $10,000,000>$10,000,000Public sector Principals may need to dissect these categories further to fulfil their ownrequirements. These project value ranges are utilised in the chart at page 128, whichdescribes a prequalification system and which takes into consideration the keyelements of the prequalification process.Generally, compliance with CIDA PQC guidelines will provide the Principal withsufficient information to undertake a prequalification assessment. However therequirement for the audit of cashflow forecasts has been excluded as it is consideredunlikely that Statutory Auditors will be willing to sign off on such future projectionswithout significant qualification to their opinions. Furthermore, although CIDArequires audited financial statements for Head Contractor values above $5 million thisexpectation may be unrealistic given Head Contractors operating between $5 to $10million may not be required under the Corporations Law to have audited accounts.There is no legal requirement under the Corporations Law for an audit or evenpreparation of accounts for those corporate Contractors who are classified as a"small" proprietary company.
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