Job Order Contracting - Basic Principles

Basic Principles

A major element of the JOC contracting process is the use of a unit price book (UPB), which provides preset costs for specific construction tasks. The unit price book can cover nearly every construction, repair or maintenance task, whether it’s replacing air filters, installing carpeting, replacing windows or doors, or even painting or it can be limited to specific areas of work or a particular trade. If a task is not in the UPB, it can be negotiated, priced and added at any time to the book.

Contractors can be selected based on best-value or low bid, depending upon the owner's requirements. As part of its proposal, or bid, the contractor submits a coefficient (a multiplier) to be applied to the preset unit prices appearing in the UPB. The coefficient must include not only the contractor’s overhead and profit, but also any adjustment that may be needed to the UPB prices based on the contractor's costs in the local area of the contract(which are functions of labor costs, subcontractor base, market conditions and client-specific conditions).

After contract award, and during the course of the contract, the coefficient will be used to calculate the price for each project which will be the preset unit prices multiplied by the quantity multiplied by the coefficient.

The partnership aspect of the JOC contracting process is exemplified by the JOC contractor usually establishing a permanent office near the facility’s management staff. This way, the JOC contractor’s project manager can become an essential, hands-on advisor to the owner’s facilities management team.

JOC contracts don’t define actual, individual jobs but normally award a potential maximum amount of work over a year. For example, a contract may have an annual maximum of $5 million or more but only a minimum guaranteed amount such as $35,000. As a result, the JOC contractor is not guaranteed any level of revenue, driving it to generate the best performance possible.

For each project, the owner and the contractor follow the same five steps: (1) Conduct a joint scope meeting at the site to review and discuss the work and the construction schedule; (2) prepare a detailed scope of work; (3) contractor prepares a price proposal using unit prices from the UPB, quantities, and coefficient, and submits a proposed construction schedule, list of subcontractors and other documents required by owner; (4) owner reviews price proposal to make sure the right tasks and quantities were used; (5) if owner is 100% satisfied with price, schedule, subcontractors, etc. owner may issue work order for the project.

This relationship carries with it a strong motivation for the JOC contractor to provide outstanding service and quality work to receive additional work orders, because the amount of work being assigned by the facility owner or manager is based on the JOC contractor’s performance. The agreement should also foster increased communication between the contractor and owner to enhance the partnership aspect of the JOC contract.

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