Performance-based contracting advances small-business goals

Throughout all levels of government, publicly funded organizations and agencies have an obligation to be wise stewards of the funds with which they are entrusted. This obligation goes beyond implementation of sound accounting and financial practices.

At the local level, taxpayers expect that government officials should serve as role models and advance areas such as community support and development. As such, procurement funds should be used to help a jurisdiction’s local business communities. During the course of contracting for services that support local facilities, the need for community involvement becomes especially evident.

When initiating contracts, the public entity sometimes includes procurement goals in a statement such as: “Recognizing an active program of research, technical assistance and procurement from minority business enterprises (MBEs), women business enterprises (WBEs) and disabled business enterprises (DBEs) is essential to the realization of progressive social and economic development goals, the following is designed to express the county’s intent to foster participation by MBEs, WBEs and DBEs in its procurement process.”

Another common clause may read: “Goals for participation by certified MBE and WBE firms for this contract shall be not less than the following percentage of the total contract price: MBE participation goal—25 percent; WBE participation goal—7 percent.”

During the procurement process, many states and localities seek and encourage participation by small business enterprises (SBEs), specifically MBEs and WBEs. By hiring these groups, officials may increase certain sources of funding for the agency and, more importantly, help the local economy by expanding bidding opportunities for specific business classifications.

However, most agencies generally find small-business requirements or goals a challenge to meet. Officials often end up awarding contracts to the same three or four small or minority businesses time and time again. As a result, the agency does not foster overall development of the local business community. Instead of building a broad range of potential resource partners, officials develop dependence on a few players.

Even before initiating the process of working for a publicly funded or government agency, many small and minority businesses see mountains to climb. The following thoughts often are expressed by employees of small-business firms:

• “I don’t want to get involved with all the paperwork.”
• “I’m too small to compete for government contracts.”
• “It takes too long for me to get paid when I do government work.”

These perceived barriers are only a few obstacles expressed by small or minority-owned businesses that want to participate in federal, state or local government bidding. Removing barriers and establishing beneficial relationships with these businesses are critical not only to the public agency or institution, but also to the local communities where the businesses reside.

One contracting method offers a viable way for small, minority-, women- and disabled-owned businesses to obtain work from publicly funded agencies.

Through a professionally developed and managed job order contracting (JOC) program, agencies can meet small-business goals for funds allocated to construction or renovation of facilities.

How does job order contracting work?

An agency entering into a JOC program contract will benefit from the ability of the JOC contractor to target specific business segments that meet the agency’s requirements. An experienced JOC contractor will develop a large database of SBE subcontractors, including MBE and WBE firms, to call on during the search of obtaining fair and reasonable prices.

Under a JOC program, the JOC contractor is responsibile for contracting with the “right” subcontractor—the firm that will provide the best service and quality and has the ability to complete the project safely and on time—not necessarily the subcontractor with the lowest price.

By enlisting the expertise of an experienced JOC contractor, the agency also should see a commitment to build and develop the local economy by mentoring and working with the SBE, MBE or WBE to ensure that the firm meets jurisdictional requirements. Additionally, the JOC contractor may conduct local and regional subcontractor and safety fairs to build awareness regarding the need for quality subcontractors. Emphasis should be placed on completing each project as safely as possible.

Through the normal bid process, the lowest-bidding subcontractor—not necessarily the most qualified—will be identified. In implementing an optimum JOC program, a unit price book is used to develop the scope of work along with a predetermined coefficient. As a result, the owner receives upfront knowledge about the firm fixed price of the project. During the course of the bidding process, the contractor is responsible for determining the most qualified subcontractor to perform the work—the subcontractor who will provide the best quality of work, in the set time frame and at a fair and reasonable price.

Since JOC is a performance-based contract, it is in the contractor’s best interest to ensure that the work will be completed with the highest quality, safety and timeliness possible—not necessarily based on the lowest bid received. If contracted conditions are not met, the owner is not required to continue issuing delivery orders under the JOC contract.

By being able to monitor a subcontractor’s work load, experience and capabilities, the JOC contractor can spread the delivery orders among various subcontractors so that one firm is not overburdened with projects. This process ensures that all work is completed in a timely fashion, as well as ensuring that multiple SBEs, MBE and WBEs are receiving a fair share of delivery orders over the term of the contract.

The overall savings in procurement costs through a JOC contract program could allow the agency to increase the number of projects that are completed, and thus increase the amount of project dollars filtering back into the community. The savings in both time and money result from eliminating conventional procurement processes involved with preparing a bid package, placing and receiving bids, reviewing the offers and awarding the contract, as well as re-bidding projects when received bids are higher than the project’s budget.

JOC contracts save costs and time

As an example of JOC contracting, assume that it costs your agency $1,000 to prepare a bid package for a renovation project that carries an estimated value of $200,000. Think about the number of similar solicitations your agency prepares annually. Do your costs increase or decrease depending on the size of the construction project? Next, assume that your agency solicits between 35 to 50 renovation, repair and minor construction projects a year. Total procurement costs would range between $35,000 and $50,000, assuming your agency does not have to re-scope and re-solicit any projects.

Job order contracts typically are solicited through a request for proposals (RFPs). Thus, assume the cost to prepare a bid package is three times the cost of a typical single-project solicitation with a cost of $3,000. Since a job order contract is open ended, as well as an indefinite-delivery, indefinite-quantity contract, JOC will allow an agency to place as many repair, renovation and minor construction projects as needed throughout the term of the contract (or until an agency reaches the dollar limit of the contract). All these variables are covered by a single initial procurement cost.

Since most JOC contracts have a base year with up to four option years, an agency could theoretically place five years’ worth of projects—between 175 and 250 projects through the contract period—at a cost of $3,000. In contrast, $175,000 to $250,000 would be required by the normal bid process implemented over the same time period.

As a steward for your district, municipality or facility, what could you do with an additional $172,000 to $247,000over a five-year period? Possibilities include completing an additional classroom renovation, chiller replacement or another project that can provide additional support and economic growth to the local community. Likewise, savings could be used to obtain additional products or services from local business enterprises to further improve the local economy and community relations.

Job order contracting is more than a procurement tool and delivery method for repair, renovation and minor construction projects. The contracting method also enables owners and contractors to work together in a trusting relationship. This relationship helps build and enhance the economic well-being of a community through mutual respect and communication.

About the Author

Vince Duobinis is a senior market development manager for Centennial Contractors Enterprises Inc., headquartered in Vienna, Va. He may be reached at 410-320-8336 or by e-mail: [email protected]. Centennial offers a range of construction services for the renovation, rehabilitation and repair of public- and private-sector facilities.