This week's blog post is authored by Scott Creekmore, Territory Manager in the Mountain Region.
One of the many great things about my marriage is my wife doesn’t really understand what I do, and as a result, she doesn’t read my blogs either, so I am safe in writing about the time we went to a marriage counselor. It was very early in our marriage—very early—like a few months after the wedding early. I can now say after 12 plus great years of marriage that everything we were going through was 100% my fault… Ok, I put that part in there just in case my wife does read this, but it’s probably not far from accurate.
See, my wife and I came from completely different life paths. We got married later in life. I had just turned 30 and she was 34. I was a single, fun loving bachelor, while she had been married before and had two children. When things would get bad, my knee-jerk reaction was to respond the way a 30-year-old bachelor would, and she was programmed to respond the way a 34-year-old mother of two would respond. In an ironic turn of events, I see these same situations play out in my job every day. I witness the same problems in Job Order Contracting (JOC) programs between facility owners and contractors all the time.
Facility owners and contractors come from completely different backgrounds and, as a result, they approach each situation from a different perspective. Probably the hardest situation to deal with is when a change order arises in the project. This is typically when we retreat back to what we know. The owner wants to be a good steward of tax dollars and may feel protective of the timeline and budget, kind of like a mother (or my wife). The contractor, on the other hand, is a for-profit business and wants to ensure they are being fully compensated for their work, hence they tend to dig in for a fight (kind of like I did). Just like in marriage, this is a stressful situation that leads to arguments, fights, and plain ol’ nastiness. Basically, each party retreats back to separate rooms and slams doors behind them. What is unfortunate, in both marriage and construction, is that these situations can be avoided with good, open and honest communication by both parties, and by ensuring that the correct construction delivery method is used.
When the low bid method is utilized to procure construction, change order issues arise. Don’t get me wrong—there is definitely a time and a need to use low bid methods. But anyone who has used it has battled with the change orders that tend to accompany that delivery method. I liken the “Low/Hard Bid” delivery method to a bad marriage. Sleeping in separate bedrooms, not talking or communicating, taking everything the other says as wrong, on edge all the time, basically just staying together for the kids, which in this case is the project. I am exaggerating a little bit, but you see my point. The nature of the delivery method does not allow for communication at the beginning of the project to help identify problems, resulting in change orders. Plus, until recently, there was no simple way to deal with the negative impacts of change orders, like time delays and cost overruns. JOC is the only construction delivery method that can truly eliminate change orders.
I am letting that sink in … or I am giving you time to roll your eyes and say “Yeah right.” Walk with me and I’ll explain what I mean. With Job Order Contracting, firm, preset prices are placed on the construction tasks that make up a particular scope of work. That price is derived by selecting tasks from a Construction Task Catalog® (CTC) to develop the contractor’s Price Proposal. The Price Proposal is the actual cost to do the agreed-upon scope of work. The facility owner issues a “lump sum” purchase order and the contractor gets to work. Simple, right? Here is the cost to do this work, done simply, right?
So, let’s say a facility owner wants to renovate an office using JOC. The owner and contractor walk through the office and the owner points out everything to be completed. Paint, new ceiling tile, new floor and cover base, etc. The contractor then builds a Price Proposal from tasks in the CTC and delivers it to the facility owner, along with a Detailed Scope of Work outlining the work requested. The facility owner reviews the Price Proposal and agrees that it’s in line with the Detailed Scope of Work. The owner issues a P.O. and the contractor immediately gets to work.
Halfway through the job, though, the contractor comes to the facility owner and says he forgot to include the cove base in his Price Proposal and he needs to get a change order for it. The facility owner reviews the Detailed Scope of Work, and sure enough, there is “Replace Cove Base” as a scope item. It is unfortunate that everyone missed it during the Price Proposal review process, but the contractor is still responsible to install that cove base for the agreed upon “lump sum” proposal.
The above situation is not something that should happen in a properly-managed JOC program. We do not want the contractor to miss anything in his Price Proposal. When a task is missed or a quantity is incorrect, the facility owner should notice it during the Price Proposal review, and must notify the contractor immediately to make sure it is corrected before work begins. Failing to notify the contractor when the facility owner knows something is amiss, just to keep the price low, is really no different than the contractor putting tasks in the Price Proposal that don’t belong there, to drive the price up.
JOC programs are like a marriage, and the best marriages are built on trust and communication. The most successful JOC programs are ones in which the facility owner wants to pay the JOC contractor a fair price for every task they perform, and the JOC contractor wants to charge the facility owner a fair price for every task they perform. If the facility owner and the contractor work together to ensure that every detail of the scope of work is reflected in the Price Proposal, the program will be successful: a program that will deliver solid auditable proposals, and will result in work performed on budget and on time. If a facility owner is not getting those things with their current JOC program then something needs to change.
In JOC there are only two reasons why there should ever be a supplemental job order. The first is obvious: the facility owner added or deleted some part of the scope of work. Instead of renovating one office, in the middle of the project the owner comes to the contractor and asks that they renovate an additional office. Hence, the additional scope the contractor didn’t account for in the beginning. The second is an unforeseen condition. By that, I mean the contractor tears down a wall and finds a gas line that no one knew was there. Simple, right? You may be saying “It’s never that simple!” Well, I am here to tell you that it is. With JOC, these are the only reasons for a supplemental job order, period.
Wait, I haven’t even told you the best part: With JOC, every supplemental job order is priced out of the Construction Task Catalog just as the first Price Proposal was. To break that down, the cost to demo out the gas line that was just discovered is the same if the contractor finds it in the middle of construction or during the initial job walk. If the CTC says it costs $1.05 a LF to demo the gas line, that’s what the contractor gets period. There is no project stoppage while the contractor gets a sub bid and then turns in a number which the facility owner may feel pressured to accept. With JOC, the contractor simply delivers the facility owner another Price Proposal, and the owner issues another P.O. and the work continues without delay. Both the facility owner and JOC contractor are protected by the firm prices in the CTC, which can’t be changed.
What is amazing to me is how many times this process can break down. And again, I believe it is because the facility owner and JOC contractor come from different backgrounds, so when there is a bump in the road, it all falls apart. Here’s why I think it shouldn’t happen and why I think owners and contractors are sabotaging their projects: Since they come from different backgrounds, they have different objectives. Facility owners want to protect, and contractors want to profit, which can present an air that one of the other one is trying to get something over on the other. Not healthy in a marriage, or in a JOC program. Take the gas line situation: there is no added bonus for a contractor to not inform the owner of everything they discover about the project. None. Since every change order is priced the same as the original Price Proposal, why would the contractor not inform the owner? Change orders cannot be used to make high profit margins later in the project, so it doesn’t make sense to not inform the facility owner of all the details discovered. The same holds true for the facility owner, as well. If the owner knows the gas line is in the wall, they need to tell the contractor. They cannot hold the contractor’s feet to the fire down the road if they were unaware that the gas line was there. So it only makes sense to be open and honest from the beginning.
Great marriages take work. Trust me, I am part of one of the best marriages I know of. Great JOC programs take work, as well. They take communication, they take trust, they take honesty and understanding. If you feel you are not getting those things from your partner, then you need to take a serious look at your situation. If you are doing battle with change orders in your JOC program, then step back and reevaluate your position. Also, don’t be ashamed to ask for help. Sometimes it just takes another point of view or an expert’s little bit of direction to help build something great!
