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Managing Construction Costs in the Public Sector
by Mary Gauer and Lisa Cooley
Today’s hyper-competitive construction market has some owners giddy with
below-budget bids, and others anxious about what happens to that pricing after
the project is awarded, not to mention quality of the end product. Change Orders
and less than stellar performance can render that low bid a poor overall value.
Public owners who take advantage of Job Order Contracting (JOC) have greater
cost control of the project, both before and after award, while maintaining
quality, schedule, and collaboration.
What is JOC?
A Job Order Contract is a long-term, indefinite delivery-indefinite quantity
contract for construction services delivered on an on-call basis through firm,
fixed price delivery orders based on pre-established unit prices. JOC is a way
for organizations to get numerous, commonly encountered construction projects
done quickly and easily through multi-year contracts.
This alternative delivery method emphasizes partnering and teamwork. Ideally,
JOC contractors are selected based on qualifications and performance at a best
value and not solely low price, because JOC requires an expanded skill set. JOC
is about performance, reliability, dependability and quality in addition to
working within budget and time constraints. The contractor provides “on call”
construction services from concept to close-out, based on competitive pricing.
JOC Helps Facility Managers Plan and Control Renovation Costs
A JOC program provides facility owners several ways to foresee and control
costs of renovation and repair projects. JOC helps facility owners work within
their budgets because it uses pre-established unit prices, found in a unit price
book, which is specified at the time of contract procurement. The contractor
offers a price coefficient (sometimes called a factor or multiplier) that is
applied to all line items in the book, establishing its competitiveness up
front—without knowing quantities, schedules or timing. Once the JOC program is
in place, individual projects are managed through a defined process. The JOC
contractor provides a scope of work document and detailed line item proposal,
providing facility owners with the ability to adjust the scope of work to fit
within their budget. Every project’s price is fixed once the proposal is
accepted, so there are no budget surprises.
Research conducted by the Logistics Management Institute shows that using JOC
can result in cost savings of 9 to 21% compared to traditional contracting
methods. Savings can be gained in four areas of a project cycle:
Administration and Procurement Putting out every project for competitive bid
adds costs—those of design, advertising, reviewing, potential re-bidding when a
project comes in over budget, awarding and administering separate RFPs/solicitations
for every project— for what are often smaller, repetitive construction projects.
With JOC, dollars saved on procurement can go toward additional construction
Design For every project, the technical specifications are already defined and
included as part of the basic JOC contract. Design costs are reduced because
many JOC projects can be planned and scoped without developing full design
documents. When formal design is required, it can be completed to the point of
the work being priceable or permitable, without requiring full bid documents.
Construction With JOC, the construction of multiple small projects is more cost
effective. With anticipation of total annual volume, a contractor spreads
general conditions and overhead costs over multiple projects being performed
simultaneously in close proximity.
Change Orders and Claims JOC helps owners eliminate contractor driven change
orders and legal claims in a couple of ways. First is the potential for
single-source accountability on JOC projects. When a JOC contractor prepares the
scope of work and drawings—either in-house or through an A/E partner, it takes
full responsibility for errors and omissions and execution of the design. The
proactive JOC scoping process ensures that the best thinking of the prime
contractor and subcontractors inform the final project scope. Second, the unit
price book ensures consistent pricing for every line item, whether the work is
part of the original scope or added during the construction process, either by
owner prerogative or hidden site conditions. This eliminates any price-gouging
by a low-bid contractor intent on making up profit with change orders and
ultimately discourages frivolous change orders.
Controlling Construction Costs at the University of New Mexico
The University of New Mexico (UNM) has had a Job Order Contract since 2002,
awarded in a best value selection process based on past performance and
personnel, project management plan, and price. JOC has been used on over 100
individual projects over the years. From a fiscal perspective, the key
advantages of JOC to UNM are:
More efficient contracting through use of pre-qualified on-call contactors
The ability to take a collaborative approach on smaller projects within a
state-regulated procurement system (and to shift associated risk of design
oversight to the contractor)
Control of project costs and any associated changes
For UNM, JOC works extremely well in the $50,000-$1,000,000 range. As
projects get larger, pricing is sometimes better in the RFP/Bid market, but with
the risk of greater cost growth.
One project to utilize JOC was a standalone facilities maintenance building and
a woodshop classroom addition on a remote branch campus. When the budget proved
woefully inadequate and site logistics for an addition challenging, the JOC
contractor and its A/E partner developed plans for a 1,700 square-foot dual-use
facility that not only saved construction dollars, but provided added value by
allowing the maintenance staff to utilize the woodshop facilities for its
The project due date was critical because of a reversion date for State funding
and the design-build approach within the JOC contracting vehicle was one of the
few options to meet the target date. There were several owner driven change
orders on the project, but the costs were controlled based on the JOC
contractual unit pricing. Most importantly, there were no delays that would have
jeopardized the State funding. Under a low bid contract, it is likely that UNM
would have paid much more for the final construction cost.
Another JOC project at UNM was the Hospital/School of Medicine Dermatology
Clinic Remodel, which included construction of a Lab and Minor Procedure Room in
pre-existing shell space, replacement of the HVAC systems serving the original
1974 building and insulation of the existing roof deck and walls to save energy
costs and increase patient comfort. UNM maintained its own design contract and
oversight for this project. The scope increased during design development but
the budget did not, so there was a need to control construction costs before the
first hammer was swung. The clinic also had to deal with loss of revenue during
the construction period so completion time was of the essence.
The JOC contractor’s initial unit-price proposal was well over the targeted
construction cost. The owner, contractor, and architect performed a detailed
review of the estimate, with an eye to reducing costs and ensuring that the
scope of work was comprehensive. The team identified some mistakes in excavation
quantities which the contractor promptly corrected, reducing the proposal
amount. Such a quantity bust could never have been identified in a lump sum
bidding format. High-dollar line items were scrutinized, and in some cases
eliminated because they did not add value in line with their cost. Substantial
furnishings line items were able to be funded separately, from the O and M
budget, thus bringing the construction scope in line with available funding.
During this process, the contractor requested clarification on several work
items necessary for a complete installation that were not shown on the plans.
Other work items were also added during the revision process, increasing the
proposal amount slightly , but preventing expensive change orders and associated
delays once work was in progress. Initiating the type of budget analysis
described above in an open RFP/Bid condition would have been nearly impossible.
Major categories for pricing appear, but not details and repricing for analysis
with subcontractors can take extended amounts of time. With JOC, OCP turned
around the bid assessment and repricing within six business days and moved
forward with a purchase order. This allowed both budget and schedule control.
Like UNM, project managers around the country can use JOC as a tool for
successful budget and schedule control and feel confident in achieving the
desired results for internal clients. There will always be unforeseen conditions
and owner requested change orders in the field, but the ability to work closely
with the contractor and client to make informed pricing decisions with
confidence is an exceptional value.
Lisa Cooley, LEED AP is Senior Manager of Market Development for Centennial
Contractor Enterprises, Inc. She has experience managing federal IDIQ and
Design-Build contracts for the federal government (GSA and Air Force) and has
run her own general contracting firm. She sits on the local chapter boards of
IFMA, Associated General Contractors of America, and Council for Educational
Facility Planners International. She can be reached at
email@example.com or 505-239-3446.
Mary Gauer, CFM, IFMA Fellow, is a Senior Project Manager with the University of
New Mexico Office of Capital Projects. Her background includes over 33 years of
Facility Management experience for Fortune 500 companies with a recent change to
the public sector. She sits on the board of the NM Chapter of IFMA and
contributes on the international level through involvement in committees and
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