02 Dec Job Order Contracting
Budgeting a project can be difficult, especially when labor is involved. While some industries have fixed payment structures when it comes to labor, others, such as contracting, have multiple ways to handle paying the contractor: hourly, fixed bid, milestone-based. The choices are many, and it can be hard knowing which one is right for your project. Thankfully, there are a few of contract structures unique to construction contracting which give the owner a great deal of flexibility and security, such as Job Order Contracting.
What exactly is a Job Order Contracting?
A job order contract specifies:
- A fixed period of time AND A fixed dollar amount
- A contractor selected based off of a competitive bidding process
A contractor that is working under a JOC agreement will be bound by the JOC to perform work on multiple jobs until either the budget or time period has been reached. This means that if one job is completed with money left to spare, the contract holder can request additional jobs from the contractor using the leftover budget.
As a part of the bidding process, the contractor will prepare a series of pre-priced estimates per each a set amount of common work units The final contract award is calculated based on the price specified for each unit of work, multiplied by an adjustment value that is specified by the construction cost index for that location.
What kind of work is a JOC contract used for?
JOC works the best when one can accurately estimate the amount of time and/or money that will go into a project. For large projects, or those which must account for unique architectural considerations such as skyscrapers or churches, this can be a real challenge. Such projects are not suited for a JOC contract. There are many factors which might arise over the course of the project which were not accounted for at the start, causing the JOC contract to terminate in the middle of a project.
JOC contracting excels is when it comes to smaller, clear cut, and repetitive jobs that can be easily and reliably scoped out. The work requested in these kinds of jobs are usually straightforward enough to be covered by the contractor’s work catalogue, making the budgeting process easier. Using JOC on a project which requires custom work goes against the methodology of JOC contracts and lowers the efficiency of the contract.
What are the benefits of JOC contracting?
As the old saying goes, “don’t reinvent the wheel.” Instead of having to organize and issue a contract for each individual job, JOC contracting allows multiple projects of similar scopes to be grouped together. This streamlines the contract process, saving time and by extension, reducing unnecessary project overhead costs.
JOC contracts also allow for an ongoing work relationship with a contractor of the contract holder’s choice over the course of many projects. Instead of having to constantly undergo the bidding process and re-evaluating if a contractor will be right for the job, JOC contracts develop a precedent of reliable completion of work, lowering the failure rate of the average project. The chosen JOC contractor will become familiar with the specifications and preferences of the client, requiring less communication and reducing the project manager’s workload for smaller projects.
What Should You Look for When Selecting a JOC Contractor?
Reliability and efficiency are the two key factors when it comes to selecting a contractor for your JOC structured project. Another concept vitally important in selecting a JOC contractor is that of value. What does their price to quality ratio look like? Even if one contractor produces work of a lower quality to another, so long as the quality meets the minimum project requirements, the cheaper option will prevail due to having a higher price to quality ratio.