How We Select Preferred Contractors

How We Select Preferred Contractors
January 1, 2018 Lily Backer
How We Hire Preferred Contractors

Making changes to buildings to reduce energy use is critical to achieving our environmental mission, and our mission is central to everything we do at Carbon Lighthouse. One of the most important things we can do to achieve that mission is find Preferred Contractors to work with repeatedly for many years to come. We need to find Preferred Contractors committed to safety, excellent communication, reliability, and integrity. We need Preferred Contractors with deep expertise in their fields. We need Preferred Contractors genuinely interested in partnership: in helping us improve as we in turn help you improve, so that together we succeed more than we each could alone.

Given the importance of finding the right Preferred Contractors – who we think of as partners –  we take our selection process very seriously. Selecting partners is a science for us, not an art. Many great companies from Toyota to Pepsi, have invested heavily in forging strong relationships with their suppliers to enable greater mutual success, and there is more than a century of research exploring which elements of selection processes work. The Carbon Lighthouse team has analyzed hundreds of pages of academic research and interviewed dozens of experts to determine the best ways to do this.

This year we anticipate awarding $20 million of contracting business to our Preferred Contractors, and $400 million over the next 5 years. What follows is a summary of how we are selecting these important partners and why.

Our Process

Carbon Lighthouse’s Preferred Contractor selection process is designed to offer significant opportunities for our teams to get to know each other. This process ideally feels rigorous, fair, and straightforward. If it doesn’t, please let us know. We’re always eager for feedback and ways to improve! Our process works as follows:

  1. Initial Review: Based on public information or information submitted by prospective Preferred Contractors, we review: Safety record, licensure, capacity for work, areas of expertise, geographic reach, and more.
  2. Phone Discussion: For prospective Preferred Contractors where there is mutual interest in a discussion, we ask questions about their business practices, technical abilities, safety practices, and more.
  3. Sample Project: We provide an example Request for Proposal, and the prospective Preferred Contractor responds as though bidding on a Carbon Lighthouse project.
  4. Reference Checks: We conduct reference checks on prospective Preferred Contractors to learn more about their reputation in the marketplace, safety track record, financial standing, etc.
  5. Office Tour: We tour prospective Preferred Contractor’s offices, understand their people and practices in greater depth, and ask additional questions.
  6. Master Frame Agreement Execution: We execute our Master Frame Agreement which includes all terms and conditions governing the partnership.
  7. Onboarding: We invest significant time training our Preferred Contractors on our mission, values, processes, typical scopes of work, performance verification process, and other expectations.

Why We Use This Process

Since we ask a lot of time (~15 hours) of our prospective Preferred Contractors, we want you to understand why we do things the way we do. Here’s why:

Bias. People are naturally biased to think favorably of, and therefore hire, people who are similar to them. In our partners, it’s not important that you’re similar to us; it’s important that you can effectively execute on an agreed-upon outcome. We want people who will help us succeed and whom we can help succeed, too. Throughout our process we have taken steps to reduce the effects of biases. We believe that doing so is not only the right things to do, but that it also pays dividends for the company by helping make sure we continue to select the very best Preferred Contractors. It’s for this reason, for example, that we post our Request for Partnership (RFP) far and wide: in industry trade groups, in local newspapers, etc.

Initial Review: We use information submitted by prospective Preferred Contractors or other publicly available information to try to quickly identify which potential partners have the skills, capacity, reputation, and safety practices to make a good Preferred Contractor. To reduce bias, we create a strict scoring rubric: For example, finding Preferred Contractors who work in the geographies we target is essential, so if a Contractor works in no regions where we work they get no points, in one region where we work they get 1 point, and in more than one region they get 2 points. Prospective Preferred Contractors who exceed the passing score threshold are invited to a Phone Discussion.

Phone Discussion: Phone Discussions are about 30 minutes long. We have a structured set of questions we ask, with time for Preferred Contractors to ask us whatever questions they want to ask. If it’s not a fit, we each can quickly move on. Phone Discussions allow us to ask questions about experience that can best be assessed through a conversation such as, “Can you tell us about a time you had a project that went awry. What did you do? What did you learn from it?” Answers to these questions are evaluated against a pre-determined scoring rubric, and those who exceed the passing score threshold are sent a Sample Project.

Sample Project. Our sample projects are designed to be as close to the real work we give our Preferred Contractors as possible. They help us assess Preferred Contractors’ abilities to do the types of jobs we would send them, and they help Preferred Contractors understand the types of jobs they’d receive from us. A sample project might be a scope of work for a job, and we’d then ask you to list all the questions you would ask us to ensure you understood the job clearly. We have found, and research confirms, that Preferred Contractors who do well on the sample project have a very high likelihood of doing well as actual partners. We enforce a strict time limit on Sample Projects. This is both for consistency and to be respectful of Preferred Contractors’ time.

Reference Checks. References checks for us are not about just checking-the-boxes. We ask for three to four references of previous clients as well for financial references. A typical question we might ask a client reference is, “How did the Preferred Contractor handle setbacks? Did they communicate well? Did they resolve the problem to your satisfaction?” We sometimes ask references to provide an additional reference because we want to hear the opinion of someone who knows your work, but who wasn’t hand-picked as a reference by you. You should always feel free to ask us not to talk to specific people or firms. We try to be respectful of everyone’s time so we will only request references from you if we are very excited about you as a potential Preferred Contractor.

Office Tour. We tour prospective Preferred Contractor’s offices to better get to know the prospective partner and to confirm the accuracy of the representations they have made about the scope of their operations, processes, and people. We want to meet leaders and field staff from our prospective Preferred Contractor’s organizations, and we will bring several people from Carbon Lighthouse as well, both executives and engineers. We ask additional questions of all prospective partners during this tour (always the same set of questions of every prospective Preferred Contractor to ensure consistency and fairness).

Master Frame Agreement (MFA). We sign a Master Frame Agreement with all our Preferred Contractors which outlines the terms and conditions of our relationship for years to come and across all jobs we will award you. This agreement is the culmination of all the mutual review work we’ve each done to date. The terms of the MFA capture our many lessons learned about what is critical for all parties to agree upon in writing so that jobs can go smoothly. The contract should have answers for the many challenges that arise when the theoretical scopes meet the real-world work of wiring, hauling, physical barriers, order backlogs, building owner schedules, and more. As applicable, the MFA also lists agreed-upon labor and materials rates that we update as frequently as necessary. This ensures predictability in revenues for our partners and in costs for us.

Onboarding. We want our partnerships to last for years to come (hopefully you’re hearing that loud and clear at this point). As such, we want to invest ensuring our Preferred Contractors have an in-depth understanding of our expectations. The onboarding process consists of a one-day seminar to set these expectations as they relate to quality of work, safety, communication, etc. Our business comes with a unique commitment to performance verification and an ongoing results assurance guarantee for our clients, and we want to ensure our Preferred Contractors understand what that looks like and why. We have found that when our Preferred Contractors understand clearly what matters to us, they end up delivering superior work— often in ways we never would have thought of ourselves—helping our business and mission, and theirs.

Final Thoughts

Our Preferred Contractor selection process is thorough and requires us to spend much more time than many other companies do. It also requires additional time from our prospective Preferred Contractors. Taking this additional time to be rigorous up front, however, has paid dividends for Carbon Lighthouse and our Preferred Contractors. Time spent in developing this relationship can be thought of as time saved on a per-project basis, which translates to more attractive margins for both parties. We invest heavily in training our Preferred Contractors. This investment wouldn’t make financial sense if we didn’t intend to work with our Preferred Contractors for many years to come and vice versa.

To accomplish our environmental mission, we need excellent and reliable Preferred Contractors. Thus far, the results of our Partnerships have been extremely positive for all involved. We hope you will consider partnering with us!

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