Job-Order-Contracting for Facility Owners

Introduction

Job-order-contracting (JOC) is a form of alternative project delivery method (APDM) becoming more popular in recent years with public organizations such as school districts, universities, and state/local agencies (Aller, 2005).  These organizations have found that job-order-contracting fills a need by providing a systematic process to manage the large number of relatively small and routine construction projects that facility owners always seem to have.  Typically, without a system to manage these types of projects, they are assigned a low priority by management and are completed when someone finds the time.  While this might work on a small number of these types of projects, it is not an efficient way to manage a large number of these projects over an extended period of time.  Job-order-contracting is proving to be that indispensable management tool in the facility manager’s tool box by providing a systematic mechanism to complete these types of projects in an efficient manner without creating another bureaucracy for the facility owner.

This paper will examine job-order-contracting from the owner’s perspective.  This includes looking at what job-order-contracting is, where it came from, and how it is being utilized.  This also includes looking at the perceived benefits of job-order-contracting with respect to its impact on construction costs, schedule, and quality.

Before getting too far into what job-order-contracting is, it is probably a good idea to provide some definition to the terms “small” and “routine.”  A “small” project is one whose construction cost is generally less than $1 million with most job-order projects falling into the $50,000 to $250,000 range (Kline, 2005).  A “routine” project is one that does not require a significant professional design effort and can be mostly priced (i.e. 90% of the line items) from items contained in the specified unit price book.

Background

Job-order-contracting was developed in the early 1980s by the U. S. Army in Europe as a means of addressing the needs of facilities that were in the constant need of maintenance and/or repair.  After much discussion, Colonel Harry Mellon and his staff at the Strategic Headquarters Allied Powers Europe (SHAPE) came up with the idea for a project delivery system that promoted quality and timely response to the Army’s need for construction/maintenance services (Williams, 1994).  At that time, Colonel Mellon and his staff were faced with a backlog of small and routine construction projects and a project delivery system that was based on the concept that construction services are a commodity whose only differentiating quality between responsive contractors is low cost (Schexnayder & Mayo, 2004).  What was developed is a type of indefinite delivery/indefinite quantity (ID/IQ) form of project delivery where a contractor develops a long term relationship with an owner to meet the owner’s needs for small and routine construction work.

Since the debut of job-order-contracting in Europe, it has made its way back to the states and out to the other branches of the federal government where it has acquired a variety of names and acronyms along the way such as “work-order-contracting” (WOC) and “simplified base acquisition engineering requirements” (SABER) (Cassell & Gilday, 1997).  Despite these superficial differences, job-order-contracting has remained pretty much the same; a project delivery method designed to provide quality and responsive construction services to facility owners in a timely manner.

Project Delivery Methods

Perhaps one of the best ways to understand job-order-contracting is to compare it to the other popular project delivery methods currently in widespread use throughout the United States.

Design-bid-build

Design-bid-build (low-bid) is the standard or traditional form of project delivery method (Schexnayder & Mayo, 2004).  Under this method an owner desiring new construction such as a new facility or remodeling will first hire a design professional such as an architect or an engineer.  The design professional will meet with the owner to determine the budget and scope of work for the project. The design professional will then convert the budget and scope into a set of construction documents (plans and specifications) for the owner to use in hiring a construction contractor.  The owner will then bid the construction work and award to the lowest responsible and responsive bidder.  The contractor is then responsible to construct the work in strict compliance with the construction documents.  The contractor’s financial success on the project is dependent on his or her ability to manage the project within the time and budget established by the bid.  If the bid was squeezed to a minimum to win the project, then it is very likely the contractor will squeeze the quality to assure a profit.

Design-build

Design-build is an alternative project delivery method that has become very popular in recent years.  One of the problem areas with the design-bid-build project delivery method is the duel points of responsibility; the design professional is responsible for the design while the contractor is responsible for the construction.  If there are any problems with the construction of the project, the owner must first determine if the problem is a design issue or a construction issue.  Design-build rectifies this problem by allowing the owner to contract with one design-build entity for both the design and construction phases of the project (Sanvido & Konchar, 1998).  This alleviates the owner’s need to become a referee in disputes between the designer and the constructor.  In addition, one of the most significant values of design-build comes from having the constructor involved in the design process.  Design professionals are experts at providing designs that are technical competent, aesthetically pleasing, and code compliant while constructors are experts in constructability and cost issues.  By combining these expert traits into a single design-build entity, the owner benefits by acquiring a design that is not only technically competent, aesthetically pleasing, and code compliant, but also a design that is economical and constructible.

Construction-management-at-risk

In more recent years, construction-management-at-risk is another alternative project delivery method that is gaining a lot of attention.  Under this form of project delivery, the construction manager is hired at about the same time the owner hires the design professional (Gould, 2005).  Through the design and construction phases of the project, the construction manager acts as the owner’s agent, bringing his or her expertise to the design and construction processes.  In much the same manner as with design-build, the owner benefits from the construction manager’s input into the design process by assuring an economical and constructible design.

Job-order-contracting

Job-order-contracting is similar to design-build in that the owner is contracting with one entity, the job-order contractor.  This contractor brings his or her expertise to the scoping and design process.  Where job-order-contracting differs from the other project delivery methods is that it is a long-term indefinite delivery/indefinite quantity type of contract.  This means when the contractor is hired there is an anticipation of work that will require construction within a very broad scope, but the exact nature and the quantity of that work are still unknown (Mulcahy, 2000).  As the owner becomes aware of the construction needs, the owner requests the contractor to prepare a cost proposal in accordance with a specified unit price book.  If the cost proposal and other aspects of the contractor’s proposal meet the owner’s expectations, then a purchase order can be issued for the work in accordance with the provisions of the job-order contract.

The Job-Order-Contracting Process

To get a better idea of how job-order-contracting works, it might be beneficial to look at the contractor selection process.  As with any project, it starts with a determination of need.  In order for a job-order-contract to be economically attractive for a contractor, there needs to be an adequate quantity of work to cover the contractor’s time and effort required to obtain and service the contract.  With this in mind, owners in many areas of the country will have two options with respect to utilizing the job-order-contracting: 1) Create their own job-order-contract, or 2) Utilize an existing job-order-contract such as those offered by cooperative purchasing agencies (a cooperative purchasing agency is an organization established to purchase goods and services in large quantities for the benefit of their members).  The decision as to which option to use is usually guided by: 1) anticipated volume of work, 2) comfort level with administration of your own job-order-contracting program, and 3) the need for contract control.

Volume of work is probably the most critical consideration when making the decision whether or not to implement a job-order-contract (Jayne, 2004).  As a general rule, contractors can only make a profit when they are working.  Thus, an owner with only an occasional need for small/routine projects would probably be better off utilizing a cooperative purchasing agreement, or separately contracting for these types of projects utilizing another project delivery method.  On the other hand, a large facility owner such as a municipality with almost a continuous need for small/routine construction projects would be the perfect candidate for the implementation of a job-order-contract.  In the later case, there would be enough work to assure the contractor that the time and effort spent on obtaining and servicing the contract would be adequate enough to justify the cost.

Owners electing to create their job-order-contract would then begin the contracting process by writing a scope of work and issuing a request for qualifications (RFQ).  This phase of the contracting process focuses only on the qualifications and capabilities of the contractors interested in providing this service (Alliance for Construction Excellence, 2002).  Once a shortlist of qualified contractors is selected from the RFQ respondents, a request for proposals (RFP) is issued to the shortlist.  The RFP provides specific details on the proposed contract including which unit price book (UPB) will be used, and how it will be updated throughout the life of the contract.  In response to the RFP, the contractor is asked to provide specific information on how he or she plans to manage the contract and what type of pricing structure will be used.  The owner would then select the top-rated contractors for an interview before making a final selection.  It is important to remember that this type of selection process is focused on qualifications and while cost is one of the evaluation criteria considered, typically it amounts to 15% to 20% of the total criteria considered in the RFP evaluation.  Other major criteria considered in the selection process include 1) the contractor’s qualifications and experience, 2) the quality of the technical proposal, 3) the contractor’s contract management plan, and 4) the contractor’s quality management plan (Mohave Educational Services Cooperative, 2004).

Following the selection phase, the owner and contractor enter the execution phase of the contract.  Depending on the specifics of the contract, it is not uncommon for the contractor to establish a project office on the owner’s property in order to be close to the facilities they service.  As an example of this, at Ft. Lewis in Washington, Centennial Contractors have established a project office on the base where they service the Army’s needs for their small and routine projects.  As the Army’s needs become apparent, Centennial is contacted and asked to submit a proposal.  The process begins by arranging a meeting between the owner’s representative and a Centennial project manager where the project is thoroughly scoped and sketched (Dolan, 2005).  Following this, the contractor then completes a take-off of the project quantities, and prices the work per the unit price book.  The proposal is put together and returned to the owner’s representative in a timely manner.  At this point, if the owner desires, there could be a request for a meeting to negotiate the proposal.  One of the unique features of job-order-contracting is the negotiation phase.  While scope, scheduling, and other aspects of the project are open to negotiation, the one item that is off the table is cost.  The cost is determined by the unit price book and once the contract is put in place, the issue of cost is fixed.  According to one of Centennial’s senior project managers, by not including costs in the negotiating phase, the owner and contractor can both focus on the quality of the project and the needs of the owner (Gerber, 2005).

In another example of job-order-contracting, 3D/I has established project offices in the primary population centers in Arizona to service their contract with Mohave Educational Services Cooperative (MESC).  Mohave is a purchasing cooperative that serves the procurement needs of school districts, universities, and other public agencies in the state (Mohave Educational Services Cooperative, 2005).  Due to the fact that the facilities serviced by this job-order contract are not located in one place, 3D/I elected to centrally locate their project offices in places near their clients, but not actually on the owner’s property.  Under this contract when client agencies such as school districts need the services of a job-order contractor, they are encouraged to contact the contractor directly.  A project manager would then meet directly with the client’s representative to develop a scope of work for the project.  The project manager would then prepare a cost proposal on the basis of the unit price book and review it with the client.  If both the client and the contractor agree with the terms of the contract, Mohave is notified to prepare the purchase order.  Funding is then transferred to Mohave and the contractor is issued a notice to proceed.  For providing this service, Mohave charges their clients a 1% service fee which covers Mohave’s administrative expenses, including spot checking the proposal to assure it meets the terms of the contract.  In the first three years of offering this service to their clients, the volume of work completed under the Mohave job-order contract has grown to $24-million and is the second most popular service provided behind the purchase of school buses (Peeler & McKee, 2005).  It also should be noted since the implementation of the Mohave job-order-contract in 2001, there have been no contractor requested change orders and no claims.

Unit Price Book

One of the unique features of job-order-contracting is the pricing structure.  The pricing for a job-order-contract is based upon a unit price book such as those prepared by the Gordian Group, the R. S. Means Company, or other such provider.  These unit price books provide the basis for almost all construction costs utilized by the contract.  The one exception to this occurs in those situations where a unit price cannot be found, or reasonably extracted from the unit price book due to the uniqueness of an item or component contained within the job-order project.  An example of this might be something like a unique piece of security equipment only used by the military.  In this type of situation, the contractor may need to go outside of the unit price book and secure a number of quotes for this work.  These items are typically referred to as non-prepriced items and are treated differently in the pricing calculations from the prepriced items (Baier, 2005).

During the RFP phase, the contractors proposing on the job-order contract are typically asked to provide at least four price coefficients: 1) prepriced items performed during normal work hours, 2) prepriced items performed outside of normal working hours, 3) non-prepriced items performed during normal working hours, and 4) non-prepriced items performed outside of normal working hours.  Since the prices contained in the unit price book are based upon actual construction costs normalized to that region, typically the coefficient proposed for the prepriced items completed during normal working hours is going to be some number near 1.00 (i.e. 0.85 or 1.12).  It should be expected that the coefficient for the work performed outside of normal work hours would be higher since the contractor would usually be expected to pay premiums for labor, lighting, and other costs associated with overtime work.  In addition, the coefficient for non-prepriced items would always be higher than 1.00 since this coefficient includes the actual cost of the subbid plus the contractor’s overhead and profit (Peeler & McKee, 2005).

One of the advantages of using the concept of a coefficient applied to a unit price book is that it fulfills the federal government’s requirements for competitively awarded contracts (Cassell & Gilday, 1997).  Thus, while the owner is not bidding out every small/routine project, he or she can be assured that the price being paid for the work being performed under the job-order-contract is indexed to the actual market value through the unit price book.  When the owner considers the cost of preparing project plans, bid documents, and going through the rigors of the full and open bid process, what may have looked like a reasonable cost for the job-order project, may in fact be a bargain.

The Right Tool for the Right Job

In a manner reminiscent of playing golf, selecting the right club for a shot is an important component of achieving your goal of a low score.  In recent years, the tools available to owners to achieve their goals of quality projects completed on time and within budget have greatly increased.  These tools begin with selecting the right delivery method for the right project.  In the past these tools were primarily limited to the use of the design-bid-build project delivery method.  With the wide range of project delivery methods now available, owners need to determine the right project delivery method for the right project.  This begins with examining the project and the owner’s ability to manage the project.  For relatively small and routine construction projects, job-order-contracting is proving to be one of those project delivery tools that should definitely be in the owner’s tool box.

While there has been some research to suggest that job-order-contracting helps owners achieve their goals of quality projects completed on time and within budget, there has been no definitive research that demonstrates this.  Proponents of job-order-contracting point to the following advantages:

Cost

Job-order-contracting takes an averaging approach to costs by applying a coefficient equal to all of the unit price items that make up the total construction costs.  It is natural to expect that some of the costs contained in the unit price book are going to be higher than the market rate, and some are going to be lower.  The contractor is aware of this fact and is going to propose a coefficient that covers his or her risk while remaining competitive.  The most likely alternative to this is to bid each small and routine project separately.  This results in additional cost to the owner due to the need to prepare construction documents for each project no matter how small or routine.  In addition, there are administrative costs with each project to put the bid together, advertise, review, award, and oversee the work.  If the owner does several of these types of projects each year, it is possible that these design and administrative costs could use up a significant portion of the construction budget (Bowers, 2005).

Quality

The success of a job-order contractor is dependent upon receiving and completing an adequate volume of work in order to cover the cost of the overhead invested in servicing the construction needs of the owner in a timely manner.  Under most job-order contracts, the owner is only obligated to provide a minimum volume of work.  Once that volume has been completed, the owner is under no obligation to provide additional work unless they are satisfied with the work previously completed.  Therefore, the contractor is highly motivated to meet the owner’s expectations with respect to the quality and timeliness of the work.  As one job-order contractor stated it: “each project is an audition for the next project” (Bowers, 2005).

Schedule

Probably one of the most noteworthy aspects job-order-contracting is its ability to provide timely response to the owner’s need for construction services (Ecker, Valardi, & Bielecki, 2005).  The initial procurement of the contract is similar in duration to that of design-build and construction-management-at-risk, but after the procurement phase, individual projects can be awarded in an expedient manner (typically 30 to 45 days). This is a critical issue to many facility owners who have small windows of opportunities to complete projects during low facility usage periods such as during school breaks.  Thus, the contractor that has a vested interest in maintaining a good relationship with the owner understands these owner needs and can respond to them.  A contractor with a single stand alone contract will more likely be more concerned with profitability on that one project than meeting the owner’s needs for a timely response.

Conclusion

The purpose of this paper has been to shed some light on job-order-contracting, what it is and how it is being used.  While job-order-contracting may not be right for every facility owner, it is proving its value as the project delivery method of choice for the owners with a steady stream of small and routine construction projects.  It provides a system where by those projects that would normally have been postponed or moved to the bottom of the priority list, can now be completed in a timely manner.

References

Aller, G. (personal communication, April 11, 2005)

Alliance for Construction Excellence (2002). Job order contracting for novices: just the basics [WWW document]. URL http://www.tcpn.org/JOC/JOCforNovices.pdf

Baier, M. (personal communication, June 16, 2005)

Bowers, C. (personal communication, June 16, 2005)

Cassell, J. W. & Gilday, L. T. (1997). Improving the Army’s job order contracting program. McLean, VA: Logistics Management Institute.

Dolan, Q. (personal communication, June 15, 2005)

Ecker, R., Valardi, P. & Bielecki, T. (personal communication, May 27, 2005)

Gerber, R. (personal communication, June 15, 2005)

Gould, F. E. (2005). Managing the construction process: estimating, scheduling, and project control, 3^rd ed. Upper Saddle River, NJ: Pearson Prentice Hall.

Jayne, K. (2004). The what, why, and how of job order contracting (JOC) [WWW document]. URL http://www.cefpi.org/pdf/issue19.pdf

Kline, C. M. (2005). Delivery order contracting: a better way to [WWW document]. URL http://www.appa.org/FacilitiesManager/articleDetail.cfm?ItemNumber=577

Mohave Educational Services Cooperative (2004). Job-order-contracting [WWW document]. URL http://www.mesc.org/job_order_contracting.html

Mohave Educational Services Cooperative (2004). Request for proposals 04E-0813 [WWW document]. URL http://www.mesc.org/solicitations/rfp04e.pdf

Mulcahy, F. S. (2000). The effectiveness of partnering and source selection in job order contracting – master’s thesis. National Technical Information Service, NTIS Order Number ADA403569.

Peeler, T & McKee, C. (personal communication June 7, 2005)

Sanvido, V. E., and Konchar, M. D. (1998). Project delivery systems: CM at risk, design-build, and design-bid-build. Austin, TX: Construction Industry Institute and University of Texas at Austin

Schexnayder & Mayo (2004). Construction management fundamentals. New York, NY: McGraw-Hill.

Williams, J. (1994). Exploring and implementing job order contracting. Unpublished master’s thesis. University of Alaska, Fairbanks, Alaska.