Job order contracting can seem like an overwhelming topic for the average construction contractor on first blush, but it’s a lot simpler than it seems. Let’s explain exactly what job order contracting is, how to use it successfully, and how it compares to other contracting and construction project delivery methods.
What Is Job Order Contracting?
Job order contracting is a pretty unique construction project delivery method. When used, it represents a system of contracts and projects rather than any one project in particular – typically public projects that are relatively small, straightforward undertakings. Through job order contracting, these projects are tackled with little administrative burden – at least on an individual basis. Further, these projects tend to be more flexible and promote a more cooperative relationship among those providing work, which can seriously reduce the likelihood of payment disputes.
How Does Job Order Contracting Work?
As mentioned above, there’s little administrative burden on individual jobs. However, there’s some work that must be done on the front end.
In order to implement job order contracting, a public entity must put together a unit price book. Essentially, it’s a compilation of jobs and projects that need to be completed. You can think of it as a grocery list or a to-do list for that public entity.
For a contractor, a unit price book is a lot more like a catalog. It sets out different jobs and the estimated price point for each.
What Is a “Unit Price Book”?
Each job is listed in a unit price book, along with a clearly defined scope of work, and an estimated price for the job. That’s where the front-end administrative work comes in. The cost of each project is estimated based on the material, labor, and equipment costs that will go into completing the work. Contractors then take these estimates in the unit price book and multiply them by their own costs of doing business (i.e. overhead, profit, etc. would be needed). Finally, they use their calculation to create a bid and submit it for the right to secure those jobs.
These bids aren’t like other projects, though. By submitting a bid, a contractor is binding themselves to a multi-year, fixed price contract. As we’ll discuss later, it’s incredibly important that the scope of work is well defined, that the estimates are accurate, and that a contractor’s ability to go off-book is limited.
New to Unit Price Contracts? We’ve Got You Covered: What Is A Unit Price Contract, and When Should One Be Used?
When Is Job Order Contracting Used?
Job order contracting is used for contracting public works projects. This method is most appropriate for relatively small, straightforward projects such as:
- uncomplicated new builds
- maintenance work
Essentially, job order contracting is for projects that won’t require extensive design work on an individual basis. More recently, it’s been proposed for disaster recovery work, and honestly, it makes a lot of sense. You can learn more about that here: Job Order Contracting for Emergency Response Projects.
What Are the Benefits of Job Order Contracting?
As you could imagine, there’s a fair amount of work that goes into creating a unit price book. It requires collecting data on labor, material, and equipment rates, then applying that data to the proposed project to come up with a fair, accurate estimate for each job. Further, it’s important to limit the ability for contractors to submit work that’s off-book or submit change orders to ensure the price doesn’t exceed what’s expected.
However, once that unit price book is created, job order contracting is incredibly convenient for a public entity. Individual oversight on these jobs is minimal, and as long as the estimates were accurate and scope of work clearly defined, it should be a low-touch process for both the owner and the contractor.
In a sense, job order contracting is similar to the design-build method. Both require upfront legwork, but the back-end efficiency more than makes up for it.
Going design-bid-build or design-build for every job would take an extensive design process and significant back-and-forth for each individual project. Job order contracting lumps that process together and puts it on the front end. In fact, that’s the whole reason job order contracting came to be: to avoid the administrative overhead on smaller, simpler public projects.
Learn more about other Project Delivery Methods:
- Construction Project Delivery Methods: A Breakdown
- The Basics of Design-Bid-Build
- Understanding the Design-Build Method of Project Delivery
How Does Job Order Contracting Save You Money?
In 2016, Arizona State University and the Center for Job Order Contracting Excellence published a study analyzing the performance of the job order contracting delivery method.
Here are some of the highlights:
- 99% of respondents recommend the job order contracting method
- 96% of projects were satisfactorily completed
- 91% of projects were on-budget
- 87% of projects were on time
- 24% saving on administrative costs compared to other methods
- 21% total cost savings for contractors
For comparison, in that same study, respondents reported that only 63% of design-bid-build projects were completed on time and only 73% of design-build. Wow. The cherry on top is that the study found job order contracting promotes greater transparency and flexibility.
Find the ASU study summary here: Job Order Contracting Performance Study. Also, the Construction Work Zone has an excellent article on the subject: Job Order Contracting (JOC) Program vs. Design-Bid-Build.
Three Pitfalls of Job Order Contracting
Job order contracting isn’t as simple as using a different type of contract, or making tweaks to a current process. It’s an entire process, requiring lots of attention to detail. However, once properly implemented, there’s a windfall to be had.
Let’s look at a few of the distinct issues that could upend an effort to utilize job order contracting.
1. Artificially Low Bids Inflated Later
This is a problem that can happen with any construction project. However, it can be harder to catch with job order contracting. Sometimes, an ill-intentioned bidder will win the work. Remember that unit price book mentioned earlier? When a bid is submitted and accepted, the price for the work is described in the unit price book. That should fend off fraud, right?
Well, unit price books aren’t all-encompassing. Sometimes, things get left out. When this occurs, contractors may be entitled to the full price of that off-book cost or work, plus a percentage. This means a contractor could go overboard with off-book expenses and requests, inflating the price of a once-winning bid.
2. Poor Administration
As mentioned throughout this post, the front-end work when implementing a job order contracting system is detail oriented and incredibly important. That unit price book set out at the start of the agreement will bind the public entity and the contractor for years to come. Successful administration (and savings), hinges on experienced project managers who are familiar with job order contracting.
3. Auditing Throughout the Life of the Agreement
I know, I know. Low project administration costs are supposed to be a perk – and they are! However, it’s important to audit jobs and compare outcomes to the original expectations to detect cases where bids might be being manipulated, off-book expenses are getting out of control, and whether the job order agreement is going according to plan.
Can Job Order Contracting Reduce Payment Disputes?
We think it can!
Some of the biggest issues leading to payment disputes in general are:
- Lack of transparency, cooperation, and communication
- Change orders
- Misaligned expectations
As discussed above, job order contracting demands cooperation and transparency from the get-go. It’s a multi-year endeavor, and honestly, the public entity and contractor act more like partners than anything. Both sides have done their research on the other so trust is typically higher when compared to other jobs.
Change orders aren’t all that common when utilizing job order contracting. That’s because these jobs are straightforward, and the scope of work is well-defined. When change orders are necessary, they typically come from the public entity. Most importantly, when change orders do take place, it’s easy to determine the price.
Finally, with the use of the unit price book system, there’s little opportunity for a gap in expectations. Everything is laid out in the open from the start. Plus, there’s no fighting over price.