DGS Tries New Method of Contracting – “JOC” Job Order Contracting

As many of you may be aware (and some currently involved), the Pennsylvanian Department of General Services (“DGS”) has re-implemented its Best Value Contracting for the New Convocation Center at Indiana University.  In lieu of the usual public bidding process, interested firms submit a proposal are based on DGS’ request for proposal.  Evaluation of the proposals done in confidence and are based on various factors to determine the lowest responsible bidder.

Now DGS is expanding its procurement repertoire with Job Order Contracting (“JOC”).  Although used in federal procurement and by the PA Turnpike Commission, this is DGS’ first fore ray into procurement of a single contractor to perform a number of indefinite projects based on an established unit prices.  JOC is focused on projects ranging from $100,000 to $300,000 and depending on the trade and region within the state is estimated to range from $500,000 to $2,000,000 worth of annual work over a three year contract term.  DGS points out that these are not guaranteed values and the issuance of projects is at the discretion of DGS.  Although DGS is soliciting for separate prime contractors, DGS anticipates that most of the projects will be single prime contracts such as door replacement, lighting replacement, mechanical and plumbing upgrades.

Through the use of JOC, DGS hopes to shorten the time between project identification and construction by avoiding the traditional system of developing bid packages and public bidding for smaller single contractor projects.  DGS also hopes to avoid an adversarial relationship and provide incentive to contractors to work well with DGS because the granting of additional work is voluntary on the part of DGS.

How does JOC work as a procurement method?  DGS has broken the state into six different regions.  In each region, DGS is soliciting bids for general construction, mechanical construction, plumbing construction, and electrical construction, for a total of 24 contracts state wide.

The bid documents consist of three parts.  The first part is the traditional front end; proposal, bid forms, instructions to bidders, general conditions, and the agreement.  The second part is a construction task catalog, which is a pre-priced listing of over 50,000 tasks organized in the CSI format.  The prices in the catalog are actual costs and include no mark-ups.  The third part is the technical specifications setting forth the quality of workmanship and materials.

Now a few of you may be scratching your heads, if unit prices for the work are already provided by DGS, what is there to bid?  Actually the only things bidders provide to DGS are four separate “Adjustment Factors”.  The first adjustment factor is the adjustment to the unit prices for normal working hours Monday through Friday.  This factor would be what the bidder believes is the appropriate multiplier to add to the unit costs for traditional overhead and profit.  Of course, in order to determine the appropriate adjustment, a prospective bidder needs to review the costs detailed in the catalog.  The prices may be higher or lower than the bidders’ costs and accordingly the adjustment factor will need to take this into consideration.

The second adjustment factor is for work performed at times other than normal work hours, on weekends, holidays and shift differentials.  The third adjustment is working normal hours in a secured facility.  This factor is DGS’ acknowledgment that a time factor is involved in working in correctional facilities and other secured facilities.  The last adjustment factor is for non-normal hours in a secured facility.

To assure that all your adjustment factors are accurate, bidders must review the catalog closely reviewing the general notes regarding the assumptions made in estimating the costs of each activity.    For example, the unit prices include cost of delivery to site, unloading storage and handling up to 2 ½ stories to installation point.  Bidders must also verify whether potential costs are set forth in the catalog or should be included into the adjustment factor.  For example, permits are not part of the adjustment factor, but are paid as a job cost item at 100%.  The costs of bonds would be part of the adjustment factor.  Some potential risks that contractors will need to take into account in the adjustment factor are the location of projects.  Our region potentially includes projects as far north as Jefferson County and as far east as Bedford County.  The timing of work also needs to be considered.  Work may be spread out over time or may be concurrent.  It may be difficult to plan ahead.

DGS has suggested a number of ways to “try” and determine an appropriate adjustment factor for bidding purposes.  One is to perform a sampling of unit costs in the catalog to compare with your typical bid price for the same scope of work.  Another is to take one of your completed projects and then price the same project from the construction task catalog adding overhead and profit to develop an adjustment factor.  Another is to create a representative project and prepare a bid normally and with the construction task catalog.  Unfortunately, because the scope of work is an indefinite quantity contract, it will be difficult to determine a scope of work.  DGS has conceded that, although it has made a good faith effort to appropriately price the work activities, there will be some peaks and valleys in the overall line item costs contained in its catalog.  Because of this, the bidders must determine whether its adjustment factor should anticipate whether the actual work scopes will have more peaks or more valleys or somewhere in between.

Other factors DGS suggests should be considered in determining the appropriate adjustment factor are based on the manner in which the Projects will be administered.  If awarded the contract, projects will be authorized under a Job Order (similar to a purchase order).  A job order is prepared in the following manner.  DGS contacts the contractor and puts them in touch with the using agency who then discusses the scope of work with the contractor.  The contractor using an internet based program called “PROGEN” (which contains the construction task catalog) prepares a proposal that lists each and every activity needed to perform the work and then applies its adjustment factor.  The proposal is reviewed by the using agency and the JOC administrator from DGS.  DGS will comment on the proposal or approve.  The only discussions are work scope and schedule since all the prices are fixed.  Once approved, the Job Order is essentially a fixed price contract.  It is at this time that the contractor will need to provide the required bonds.  Once the Job Order is executed, the project is administered like any other DGS project.  The Contractor will not be able to adjust the price under the Job Order if a work item is missed; reciprocally, DGS will not be able to adjust the price under the Job Order if the contractor did not need to perform a listed item.  Price adjustments will be allowed for differing site conditions and scope changes.

Given this administrative process for consideration of the appropriate adjustment factor, contractors should expect to prepare incidental drawings for some projects to either justify quantities or explain the scope of work.  Contractors should anticipate preparing cost proposals for some projects that are canceled.  Bonds are not required at the time of entering into the overall contract but at the time the job order is executed.  The bonds will be released when work is completed under the Job Order.  DBE goals of 15% (MBE) and 10% (WBE) for general construction and 10% (MBE) and 10% (WBE) for the other contractors is based on yearly performance and not on a job order basis.  Because the contract is a three year contract, after the anniversary date of the contract the Contractor is entitled to a modification of its adjustment factor based on the 20 City Average Construction Cost Index as published by ENR.  If this adjustment factor is unacceptable, the Contractor has the option of walking away from the Contract.

Other “soft” bidding considerations suggested by DGS are the COSTAR Program in which other participating public entities can piggy-back on the contract award.  For example, the contractor can use the JOC contract award to market its services to municipalities which could contract with the contractor under the same terms and conditions of the DGS contract without the need for public bidding by the municipality.  DGS also suggests that the amount of work under the contract is performance driven; meaning that if the contractor is responsive, dependable and provides an on-time quality project it is likely that Job Orders continue to likely be issued.  DGS is very up-beat about the process and appears to be spinning this as a partnership between it and the successful bidder.  It remains to be seen whether this attitude will continue with all those involved in the process.

Bids for the Western Region South are currently due September 3, 2008, which includes Allegheny County and 13 surrounding counties.  While the JOC process will speed delivery of certain sized projects for DGS and eliminate most if not all pricing disputes, there will obviously be issues to deal with during the process, both bidding and administrative.  Maiello, Brungo and Maiello, LLP can help you understand the bidding documents and assist you during the administration of a contract.  Please contact a member of our Construction Law Team at 412.242.4400.

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