Conditional Approval Letter Template

What this is

The letter you send a subcontractor who passed prequalification with reservations. It says they are approved, states the ceiling, lists the conditions attached, and says what would remove each one.

It is the alternative to the two answers most GCs actually use, which are an unconditional yes and silence.

When you use it

• A sub whose experience is good but whose largest completed project is well below your scope
• A sub with thin working capital relative to the backlog they are carrying
• A sub with a payment history problem — supplier references that hesitated, a lien, a slow pay pattern
• A newly formed company whose people are known to you but whose entity has no track record
• A sub coming back after a bad job, where the evaluation was conditional
• A sub who cannot get a bond at the size you would otherwise award

How to fill it in

Set the award limit before you write anything else. The limit is the main condition; everything after it is a mechanism for protecting the exposure below it. If you cannot name a number you would be comfortable with, the answer is not conditional approval, it is no.

Pick two or three conditions, not eight. A letter with eight conditions is a decline written politely, and the sub will read it that way. Choose the ones that address the actual risk you identified.

Match the condition to the concern. Thin working capital points to joint checks and direct purchase. A payment history problem points to joint checks and waivers. A size step-up points to a bond, a reduced scope, or a phased award. Applying every condition to every concern shows you did not read the file.

Say what removes each condition. A condition with no exit is a permanent penalty, and it gives the sub no reason to fix anything. "Two completed projects at this size with clean evaluations" is an exit. "At our discretion" is not.

Give it a review date. Conditions that nobody revisits stay in place for years, usually past the point where they made sense.

Watch out

Never put a judgement about the company's solvency in writing. Do not write "we have concerns about your financial condition", "your balance sheet is weak", or "we do not think you can fund this job". State requirements, not opinions. A letter saying "a payment bond is required on awards above {{AWARD_LIMIT}}" is a requirement. A letter characterizing the sub's finances is an opinion that can be forwarded, repeated, and eventually quoted back at you by their lawyer. Requirements are defensible; opinions are not.

Rule of thumb

Have a construction attorney review your standard version once, before you send it the first time. It is an hour of their time, it fixes the wording of the joint check and bond conditions, and you then reuse the reviewed version indefinitely.

The template

Merge variables

Variable	What it is
{{DATE}}	Letter date
{{SUB_LEGAL_NAME}}	Subcontractor's legal entity name
{{SUB_CONTACT}}	Named recipient, an owner or officer
{{SUB_ADDRESS}}	Full address
{{TRADE}}	Scope or trade
{{PROJECT}}	Project name
{{AWARD_LIMIT}}	Maximum contract value approved
{{AGGREGATE_LIMIT}}	Maximum total across all your jobs at once
{{RETENTION_PCT}}	Retention percentage
{{SUPPLIER}}	Named supplier for joint checks
{{BOND_TYPE}}	Payment bond, performance bond, or both
{{LONG_LEAD_ITEM}}	Material you will purchase directly
{{REVIEW_DATE}}	Date the conditions will be reviewed
{{CONTRACTOR_LEGAL_NAME}}	Your legal entity name
{{SIGNER_NAME}}	Who signs
{{SIGNER_TITLE}}	Their title
{{SIGNER_PHONE}}	Direct phone
{{SIGNER_EMAIL}}	Email

The letter

{{DATE}}

{{SUB_CONTACT}}
{{SUB_LEGAL_NAME}}
{{SUB_ADDRESS}}

Re: Prequalification — {{TRADE}} — {{PROJECT}}

Dear {{SUB_CONTACT}},

Thank you for completing our prequalification form and providing the supporting
documents. We have reviewed the submission and spoken with your references.

{{SUB_LEGAL_NAME}} is approved to contract with {{CONTRACTOR_LEGAL_NAME}} on
{{PROJECT}} for work up to {{AWARD_LIMIT}}, and up to {{AGGREGATE_LIMIT}} in
total across all of our projects at any one time, subject to the conditions
below.

CONDITIONS

The following apply to any subcontract awarded to you under this approval.

1.  Bonding. A {{BOND_TYPE}} in the full subcontract amount is required, at
    your cost, naming {{CONTRACTOR_LEGAL_NAME}} as obligee, issued by a surety
    acceptable to us. The bond must be delivered before mobilization.

2.  Joint checks. Payments covering material supplied by {{SUPPLIER}} will be
    issued as joint checks payable to {{SUB_LEGAL_NAME}} and {{SUPPLIER}}. A
    joint check agreement will be executed with the subcontract.

3.  Retention. Retention will be held at {{RETENTION_PCT}} of each progress
    payment, released per the subcontract following final completion and
    delivery of closeout documents.

4.  Lien waivers. A conditional waiver on progress payment must accompany every
    pay application, and unconditional waivers for the prior period, from you
    and from each of your suppliers and lower-tier subcontractors, must be on
    file before the next payment is released.

5.  Funds control. Payments under this subcontract will be administered through
    a funds control service, at our cost, with disbursement to your suppliers
    and payroll on presentation of invoices.

6.  Scope. Your award is limited to {{TRADE}} as described in the subcontract
    exhibits. Additional scope requires our written approval and may require
    this approval to be revisited.

7.  Direct purchase. {{CONTRACTOR_LEGAL_NAME}} will purchase {{LONG_LEAD_ITEM}}
    directly and provide it to you for installation. Your subcontract value and
    schedule of values will be adjusted accordingly.

8.  Insurance. Updated certificates of insurance and the endorsements required
    by the subcontract insurance exhibit must be provided monthly, rather than
    at renewal only.

REMOVING THESE CONDITIONS

These conditions are not permanent. Each of the following will remove the
condition next to it, on written confirmation from us.

  Bonding             Two subcontracts completed with us at or above
                      {{AWARD_LIMIT}}, each with a closeout evaluation of
                      approved or better.

  Joint checks        Twelve months with no supplier claim, lien, or notice
                      to owner on any of our projects, confirmed by
                      {{SUPPLIER}}.

  Retention           Retention returns to our standard rate at the same point
                      the bonding condition is removed.

  Monthly insurance   Two consecutive renewal cycles with certificates and
  certificates        endorsements provided before expiry without a request
                      from us.

  Funds control       Financial statements for a completed fiscal year showing
                      working capital sufficient to support the award limit,
                      prepared at review level or above.

REVIEW

We will review this approval on {{REVIEW_DATE}}, or earlier if you ask us to
after meeting any of the conditions above. Send us updated financial statements
and an updated bonding capacity letter at that time.

If you would like to discuss any of this, call me directly on {{SIGNER_PHONE}}.
We would rather work through it with you than have you find out about a
condition when the subcontract arrives.

Sincerely,


{{SIGNER_NAME}}
{{SIGNER_TITLE}}
{{CONTRACTOR_LEGAL_NAME}}
{{SIGNER_PHONE}}
{{SIGNER_EMAIL}}

Selecting the conditions

Delete the ones you are not imposing and renumber. Use this to choose.

Concern from the file	Conditions that address it
Largest completed project well below the scope	Reduced scope, phased award, bonding
Thin working capital	Joint checks, direct purchase, funds control
Supplier references hesitant, lien history	Joint checks, unconditional waivers, funds control
New entity, known people	Bonding, lower award limit, shorter review period
Coming back after a poor evaluation	Reduced scope, monthly certificates, early review date
Cannot obtain a bond at scope size	Reduced scope, direct purchase, joint checks
Insurance repeatedly lapsed	Monthly certificates, payment held on lapse

Notes and common mistakes

Softening it until nobody knows what was decided. A letter that says "we may need some additional assurances going forward" produces a phone call, not compliance. Be direct: the limit is this number, the conditions are these, here is what removes them.

Explaining your reasoning about their finances. Read the callout above again. State the requirement and stop. The sub does not need your analysis, and putting it in writing helps nobody.

Sending it after the subcontract. The conditions have to be visible before pricing. Bonding and funds control cost the sub money, and a condition sprung after award turns into a change order request or a lost sub.

Imposing conditions with no exit. Without a path out, a good sub takes the work once and never bids you again. The exit column is what keeps them.

Never actually reviewing. Put {{REVIEW_DATE}} in the same calendar as your annual requalification. A condition that outlives its reason costs you your best small subs.

Using it as a decline. If you would not award the work at any size or under any condition, send a short decline instead. A conditional approval nobody intends to honor wastes the sub's bonding capacity and your reputation.

For how to reach the decision this letter communicates, see subcontractor prequalification and the prequalification workflow.

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Related Resources

• Subcontractor Prequalification — when conditional beats a clean yes
• Prequalification Workflow — decision process
• Subcontractor Risk Scorecard — sets the award limit