Job Order Contracting (JOC) offers a streamlined approach for tackling numerous small to medium-sized construction projects. You can liken a JOC contract to an umbrella agreement for one location or a set of sites. This agreement allows you to complete multiple jobs for as long as the contract is in effect.
The military developed this project delivery approach in the 1980s to streamline the traditional Design-Bid-Build (DBB) method. Before JOC’s inception, even the most minor projects required individual designs, lengthy bidding processes, and contract awards to the lowest bidder.
This procedure became increasingly inefficient, often resulting in delays, budget overruns, and disputes or concerns about quality. JOC successfully addressed these issues in the military and, since its emergence in the private sector a little over a decade ago, has proven equally valuable.
Many states have authorized JOC’s use for public construction because it provides owners with a readily available general contractor who already understands their site and specific needs.
When does JOC make sense?
The JOC method excels in handling recurring tasks and situations where owners anticipate a steady stream of smaller jobs, but don’t know the exact timing, type, or volume of work upfront. A single JOC contract can manage routine maintenance, renovations, upgrades, alterations, and minor construction jobs at a site. These jobs typically involve minimal design work.
JOC is not the right fit for large, complex new construction projects demanding extensive or innovative design, or those likely to face significant changes during construction. Some states have set a cost limit for projects completed under a JOC. New Jersey, for example, has a $500,000 limit, which applies to the total project cost, including any associated subcontracts. A JOC in NJ can’t exceed one year, although it can be renewed twice for additional 12-month periods as long as the $500,000 threshold isn’t exceeded.
Why are JOCs useful?
JOCs offer several key advantages. Projects under these contracts often finish faster, cost less, and maintain or exceed the quality of work achieved through a traditional DBB approach.
The most obvious benefit? Eliminating the need to create separate contracts for each job. Since procurement processes add significant overhead and require considerable staff time, bypassing this step saves time and money. Jobs progress faster and more cost-effectively because the initial procurement expenses can be spread across multiple projects. Many JOC projects see work begin just 20 to 30 days after the owner communicates the need — a stark contrast to the roughly 180 days typical with DBB.
Another significant advantage lies in how JOC contracts establish set unit pricing for labor and materials. No pricing negotiations are involved.
Further, the long-term relationship established between the owner and job order contractor facilitates efficient communication. As the contractor becomes familiar with the owner’s needs and expectations, the partnership — especially in a cooperative environment — leads to improved quality and better value. JOC contracts typically include minimum and maximum dollar amounts for assigned work, creating a strong incentive for a contractor to deliver efficient, high-quality, and reliable service. Owners, meanwhile, have the motivation to build positive relationships with the JOC contractors to maximize the contract’s benefits.
Finally, a crucial aspect of the JOC process is the use of a qualifications-based selection (QBS) method for choosing the contractor. The selection prioritizes:
- The contractor’s experience with similar sites
- Knowledge and capabilities of their crew
- Other factors directly influencing the quality of the completed work
How are JOC contracts set up?
Let’s walk through how the JOC procurement process works. It begins when an owner identifies a recurring need for tasks, small new projects, and renovations — situations where JOC proves particularly useful. Before choosing the contracting form, the owner must first define the general scope of work (SOW):
- Potential types of work the contract will cover
- Locations where the work will take place
- Quality and design standards applicable to all projects under the agreement
The procurement follows a two-step procedure. The first step involves the owner issuing a Request for Qualifications (RFQ). Interested firms respond, and the owner evaluates them on predetermined criteria, which typically include a firm’s:
- Qualifications and track record (including references)
- Previous experience with JOC contracts
- Proven ability to manage multiple projects simultaneously
- Personnel qualifications
- Financial stability
- Safety record
- QA program or quality management plan
- Project management strategies
- Information technology systems
The owner assigns a weight to each criterion based on its importance to successful project completion. Scoring all participating firms against these weighted criteria helps the owner create a shortlist of the most qualified candidates. Then the contract negotiation process begins. If the owner can’t agree with the first firm, it’s time to move to the next on the list, continuing until everyone is happy. This initial selection process heavily emphasizes QBS. But price factors in later and is settled between the owner and contractor during negotiations.
The next step involves issuing a request for proposals (RFP) to the shortlisted firms, but sometimes an owner may not choose this step. For JOC procurement, the RFP primarily consists of the proposed contract outlining the terms and conditions. Firms responding to the RFP will submit any changes they propose to the contract negotiations, along with their proposed price coefficient.
This price coefficient acts as a multiplier applied to a Unit Price Book (UPB). This book lists pre-established prices for various construction jobs and materials. The price coefficient adjusts the unit prices to calculate the final cost of each line item for specific jobs. Owners who are new to JOC should independently assess the proposed price coefficients when evaluating RFP responses.
A common approach is to select a recently completed project (not under a JOC contract) resembling the type of work the owner anticipates under the new agreement. The owner breaks down the previous project into line items found in the UPB. By totalling these line items and dividing that sum by the actual price paid for the project, the owner can calculate the effective price coefficient for the past job. This calculated coefficient serves as the benchmark for comparison with the coefficients proposed by the bidding firms.
This comparison provides a guideline for negotiations. Owners may be able to negotiate a slightly lower price coefficient than what a single previous job reflects. Because the contractor incurs significant start-up costs with a JOC contract, the guarantee of multiple jobs under the agreement supports economies of scale, some of which the contractor should pass on to the owner. A caveat: price coefficients may vary based on regional factors and current market conditions.
Key components of a JOC contract
The key components defining JOC agreements unique to this delivery include:
- Unit Price Book: A comprehensive catalog that lists pre-determined prices for a wide array of construction jobs and materials
- Price coefficient: The multiplier, agreed upon in the contract, amidst the unit prices in the UPB to reflect local market conditions and the contractor’s overhead and profit. It’s the key to calculating each specific job’s final cost. The contract clearly identifies the specific UPB a contractor will use.
- Guaranteed Minimum Amount of Work: The contract specifies a minimum dollar value of work the owner guarantees to assign to the contractor during the initial contract term and any subsequent option years. This provision safeguards the contractor’s investment in establishing operations near the site and building a successful working relationship with the owner.
- Contract maximum amount of work: The agreement also sets a potential maximum dollar value of work for each contract year. Establishing a maximum significantly higher than the minimum (but still achievable) enables the owner to create a strong incentive for the contractor to perform above and beyond expectations.
- Contract duration: JOc contracts commonly feature a base year with options to extend an additional two to four years. However, the initial contract period can sometimes extend three years or longer.
- Options for contract extension: These clauses enable the contract to continue beyond the initial term, typically on a year-by-year basis. Since a longer-term relationship between an owner and contractor typically yields greater benefits for both parties, they have a vested interest in fostering a successful partnership that encourages contract extensions.
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