Alyssa Chapman is the Southeast Director of Sales for The Gordian Group.
Often, when exact tasks and quantities required to complete a project are unknown, facility and infrastructure owners turn to a Time & Materials contract to get work completed. But there is another option, Job Order Contracting (JOC)—a fast and flexible construction procurement process. Here are three ways in which owners retain more control by using JOC.
1. Budgetary Control
With a Time & Materials contract, the owner generally pays for labor and equipment by the hour, and the total number of hours required is not established in advance. The more hours the contractor works, the more the contractor gets paid. There is no incentive to be efficient or to keep down costs. Also, materials prices are not fixed. There is generally a fixed mark-up (e.g. %15) for the material costs. The more the materials cost, the more the contractor makes. Again, there is no incentive for the contractor to minimize the cost of materials for the owner.
In contrast, the JOC procurement method relies on preset unit prices to be multiplied by a competitively bid Adjustment Factor (e.g. 1.1500) for each task. In this respect, JOC is similar to a fixed price bid. The contractor will get paid a fixed price (including labor, material and equipment) to accomplish a definitive task. There is no opportunity for the contractor to increase costs. The contractor will not be paid for extra labor or material costs.
2. Scheduling Control
On any project, things can end up taking longer than originally anticipated. This is just the nature of construction. With a Time & Materials contract, there is a built in incentive for the contractor to take longer to complete the work. The more time the project takes, the more labor hours the contractor can bill. There is no incentive for the contractor to be efficient.
However, in JOC, it’s the opposite. JOC speeds up the procurement cycle because owners are able to complete multiple projects under a single, competitively-bid contract, so owners save on the time, expense and administrative burden of going out to bid on each and every repair project. And, because the contractor is paid a fixed price for each task, the contractor has an incentive to complete the work as quickly as possible. In JOC, spending additional time on a project costs the contractor money, not the owner. Therefore, projects tend to finish on time or ahead of schedule.
3. Administrative Costs
For Time & Materials contracts, the owner must verify the labor hours and equipment hours spent on a project. Remember, the owner is paying for each hour of each worker and piece of equipment. So, the owner generally assigns a project representative to be on the site recording the hours worked and the work performed. The project representative will also measure the contractor’s productivity and try to push the contractor along, which sometimes leads to an adversarial relationship.
The JOC process, on the other hand, creates a much more collaborative experience for the owner and contractor. Contractors are motivated to provide high quality work and finish on time. There is no benefit to the JOC contractor for dragging out completion. Since the owner is only paying for the quantity of completed tasks, it is not important to track the number of hours spent on each task – only whether the task was completed. Therefore, the owner’s representative does not have to be on site every hour of every day. In addition, the JOC contract is structured so that the contractor has an incentive to complete each project on time, because future projects are tied to the contractor’s performance. If the JOC contractor does not meet the owner’s expectations for schedule and quality, the contractor will not be assigned additional projects. The JOC process delivers a substantial incentive for the contractor to perform.
A Time & Materials contract is one option available for owners to complete work, but there is no incentive for the contractor to reduce the costs for labor, materials, and equipment, or to meet schedules. It also requires the owner to spend significant administrative time monitoring the contractor’s use of labor and equipment, double checking material costs, and guarding against inefficiency.
The JOC process mitigates these risk by establishing up-front fixed costs for all work, which incentivizes the contractor to complete the work on time. The contractor, instead of the owner, pays for inefficiency. In addition, JOC is a performance based contract. The contractor is not guaranteed to receive the next project. The contractor will only be assigned the next project if it performs well on the existing project.
