In managing construction, professionals and contractors are expected to deal with various work arrangements and contract agreements— job order contracting is one of them. At a glance, job contracting may look like a complex topic to dive into, but it is simpler than it seems.
Let’s discuss what job contracting is for and how it differs from other construction project delivery and contracting methods.
What Is Job Order Contracting in Construction?
Job order contracting is considered a unique project delivery method in construction. When implemented, it involves a system of projects and contracts instead of just one project in particular— usually small projects with straightforward undertakings. With the job order contracting method, construction projects are tacked with minimal administrative burden– when individually speaking.
Moreover, these projects foster more flexibility and promote a more collaborative relationship among the stakeholders, significantly reducing the chances of payment disputes down the line.
What Does Job Order Contracting Offers?
As mentioned before, there is a minimal administrative burden on jobs, but some work needs to be done on the front end.
In order to incorporate job order contracting to your company, a public entity must first put together a unit price book as a reference. Generally, it’s a compilation of projects and jobs that need to be completed. Think of it as a to-do list or a grocery list for that public entity or a private client.
For a general contractor or subcontractor, a unit price book is more like a catalog. It sets out different tasks or jobs with an estimated price specified for each item.
What Is a “Unit Price Book”?
Each construction job is listed in a unit price book, with a detailed and defined scope of work and an estimated cost for the job- it’s where the front-end administrative work comes in. The estimated cost of each project is based on the labor, material, and equipment costs that will be needed in completing the work.
Hired contractors then use these estimates listed in the unit price book and multiply them by their company’s costs of doing business (i.e., profit, overhead, etc., would then be considered). Finally, they use their cost calculation to create a bid and submit it to the project owners for a chance to secure those jobs.
These bids are not like the typical projects you see in construction, though. By submitting a bid to a project owner, a contractor is binding to a fixed price, multi-year contract. As we’ll discuss further, it’s incredibly essential that the scope of work is clear and well defined, that the cost estimates are accurate, and that a contractor’s chances to go off-book are limited.
When Do You Use the Job Order Contracting Method?
The job order contracting method can be incorporated for projects that range from private residential jobs to public works projects. This method is most advantageous for relatively straightforward and small projects such as:
- simple new builds
- maintenance work
In a nutshell, job order contracting is for construction projects that won’t require extensive design individually.
What Are the Advantages of Job Order Contracting?
There’s an extensive amount of work that goes into building a unit price book. It involves collecting data on material, labor, and equipment rates, then applying the consolidated data to the proposed project to develop an accurate and fair estimate for each job or scope of work. Furthermore, it’s vital to limit the ability of the bidding contractors to submit an estimate that’s off-book or issue change orders to make sure the price doesn’t exceed what was expected.
However, once that unit price book is established and approved, job order contracting is incredibly convenient for a company. Individual management on these jobs is minimal, and as long as the reflected estimates are accurate and the scope of work defined, it should be a smooth process for both the project owner and the contractor.
Generally, job order contracting is similar to the infamous design-build method. Both involve upfront legwork, but the back-end efficiency significantly makes up for it.
Shifting to every job’s design-bid-build or design-build method would require an extensive design process and close back-and-forth collaboration for each project. Job order contracting then lumps that process together and places it on the front end. In actuality, that’s the whole reason the job order contracting idea was conceived— to avoid administrative overhead on simpler, smaller public projects.
Can The Job Order Contracting Method Save You More Money?
According to the joint study of the Center for Job Contracting Excellence and Arizona State Study back in 2016, below are the highlights of their research that focus on job order contracting delivery methods.
Below are the highlights from their research:
• 99% of the respondents highly recommend the job order contracting method
- 91% of projects were right on-budget
- 87% of projects were finished on time
- 96% of projects were completed satisfactorily
- 24% savings on administrative costs compared to other contracting methods
- 21% cost savings for contractors
Last but not least, the study found that job order contracting promotes greater flexibility and transparency between the project stakeholders.
What Are the Root Causes of Inaccurate Estimates?
It is usually not one cause but a combination of essential factors contributing to cost estimates being less thorough, less accurate, and less defendable than expected. Three of the more common root causes of inadequate cost estimates are the following:
1. Inaccurate Cost Data
Not having a reliable Masterfile or database catalog of labor, material, and equipment costs to accurately price the job according to prevailing market conditions will inevitably derail any estimate.
2. Incomplete Scope of Work
Making sure that a tight scope of work represents the project or task reduces the possibility of incorrect work elements and increases the chances of producing a more accurate cost estimate.
3. Inconsistent Work Process
Capturing and applying consistent methods of developing estimates helps every estimator ensure that organizational best practices are applied and promotes a repeatable process for developing detailed estimates for the next construction project.
What Are the Disadvantages of Job Order Contracting?
Job order contracting isn’t as straightforward as using a more typical construction contract or adjusting to a current contracting process. It’s essentially an entire process that requires lots of attention to detail. Still, once properly implemented and adapted to a company or team, there’s a windfall to be had.
Let’s look at a few of the issues that could upturn an effort to utilize job order contracting for a construction project:
1. Low Bids Inflates Later
This is a common problem that can happen with any construction project. Nonetheless, it can be harder to detect with job order contracting. Every now and then, an ill-intentioned bidder will win the construction work. Remember that unit price book that was mentioned earlier? When a bid is submitted and approved, the price for the work is stated already in the unit price book— which should fend off fraud, right?
Well, a unit price book is not all-encompassing. Sometimes, things or the scope of work get left out during the creation period. When this happens, contractors may be entitled to get the total price of that off-book work or cost, plus a percentage. This can allow a contractor to go overboard with off-book requests and additional expenses, inflating the original price of a once-winning bid.
2. Poor Management and Administration
As mentioned in this post, the front-end work when incorporating a job order contracting system must be detail-oriented since it is an integral part of the method. That unit price book established at the start of the agreement will bind the project owner and the contractor for years to come. Successful administration and project management hinge on experienced construction managers who are experienced with job order contracting.
3. Regular Auditing Throughout the Lifespan of the Agreement
Low project management costs are supposed to be an advantage – and they are! Nevertheless, it’s still important to audit jobs and compare work outcomes to the original expectations to expose cases where bids might be manipulated, off-book expenses get out of control, and whether the job order agreement through every step of the way is going according to plan.
Can Job Order Contracting Prevent Payment Disputes From Happening?
The short answer is a big yes.
From researches, it was said that some of the most significant issues leading to payment disputes in managing construction involve the following:
- Lack of transparency
- Lack of cooperation
- Poor communication
- Unplanned change orders
- Misaligned stakeholders expectations
As discussed, job order contracting demands transparency and full cooperation from day one. It’s a multi-year agreement, and honestly, the project owner and contractor act more like partners more than anything in the whole span of the contracting job. Both parties have done their research about each other, so trust is usually higher when compared to other contracting methods.
Change orders aren’t all that prevalent when utilizing job order contracting. This is because these jobs are uncomplicated, and the scope of work is specified. When change orders are necessary, they frequently come from the project owner. Most importantly, when change orders have taken place, it’s easy to determine the price for the items that will be adjusted.
And finally, with the incorporation of the unit price book system, there’s little to no opportunity for a gap in expectations of the project stakeholders. Everything is laid out openly to everyone from the start. Additionally, there’s no fighting over the price.
Streamline your job order contracting processes with Pro Crew Schedule, a construction scheduling software that can help you combat all of the significant issues that can lead to payment disputes.