Construction Procurement Best Practices to Stay on Budget
“I was hoping to have to spend more money,” said no one ever.
Agencies and organizations spend a lot of time creating budgets to ensure they’re financially stable and responsible. While you never want to get on the wrong side of your finance department, cost overruns for construction projects are common. There can be a lot of moving parts and parties to a repair or renovation project, and it’s not hard to creep beyond the original scope. Here are four construction procurement best practices to remain on budget and avoid cost overruns.
Rely on Accurate Data
You have a goal—stay on budget. But, what is your budget? Job Order Contracting (JOC) provides transparency into every line item within a project. Gordian’s Job Order Contract includes a tailored list of construction tasks with corresponding pre-set unit prices, developed and verified by a team of cost researchers, cost engineers and data scientists. This Unit Price Book, called a Construction Task Catalog® (CTC), is created exclusively for construction procurement and is your foundation to create and keep accurate budget expectations.
The University of North Texas (UNT) leverages the relationships it has built around its JOC program to streamline work and get construction completed quickly. Cheryl Smith, UNT Facilities Senior Project Manager, says, “Most of our projects on campus are JOC projects.” UNT has used JOC to repair and maintain various athletic facilities, make small classroom improvements and even complete major building renovations. Cheryl says, “The benefit for us is pricing, 100 percent. And getting that into budgets that we know are going to be down to the penny.”
Each CTC is customized to include your commonly used tasks, brands and technical specifications. Unit prices are established upfront, eliminating hidden charges and surprises. With both the contractor and project owner being bound by the CTC, the cost of construction is firm, eliminating price negotiations and minimizing the stress of procuring projects.
Hire the Right People for the Job
The saying goes, “Good help is hard to find.” But, it never hurts to know people who know people. Gordian has vetted reputable, local contractors in every region of the United States for client’s easy access and peace of mind. Here is how the competitive bidding process works with Gordian JOC to ensure that your job ends up in the right hands:
The first step is to advertise the Job Order Contract, which is bid in strict accordance with your requirements. Next, the pre-qualified contractors bid adjustment factors to be applied to the preset unit prices in the CTC. The adjustment factors include all indirect costs such as overhead, profit, insurance and bonds. Once the contractors submit the required insurance and bonds, the Job Order Contract is awarded. Thereafter, that contractor is available and ready to perform a series of individual projects as needed by the owner.
Miami-Dade County Public Schools has used a JOC program since 1991 for their renovations, MEP improvements and smaller new construction projects. Francis Hoar, the Administrative Director for Miami-Dade County Public Schools says, “Having honest, strong relationships with contractors is essential. And JOC helps facilitate these relationships. When they understand our needs, we understand the operational issues involved. Then when we add knowledgeable and professional project managers, it makes for a winning combination. Everyone is invested and incentivized to perform at their best.”
Ensure a Clear Scope of Work
Another important rule to follow is to make sure everyone involved in the project is on the same page before the Price Proposal is created. Sometimes the best way to do that is to have a meeting. Not a meeting in an office where the team sits across the table from each other. But a collaborative meeting, where everyone walks through the details of the project—and literally walks the jobsite. This is called the Joint Scope Walk or Joint Scope Meeting.
The Joint Scope Meeting allows the contractor to inspect the site and ask questions before submitting a Price Proposal. This valuable time together helps to eliminate misunderstandings and mistakes that lead to most change orders. Collaboration and communication are key ingredients to defining the project’s detailed Scope of Work (SOW). All parties involved are given this opportunity to effectively communicate their objectives and make known their needs for a successful project. Understanding every detail of the construction project allows all stakeholders to use their knowledge and expertise to help in developing the scope. After the Joint Scope Meeting, a detailed SOW is prepared that describes the work the contractor will perform.
Manage Change Orders With Ease
These days, a really good strategic plan will acknowledge the possibility of changes. Most change orders are avoided early on in the JOC process because of the collaboration and communication from the beginning of the project. Unforeseen circumstances and conditions can cause projects scope to shift. With Gordian JOC, change orders are subject to our pre-set prices in the CTC, making it easy to quickly calculate the cost difference and avoid new price negotiations and project delays.
Like many counties across America, Monterey County, California, is faced with high expectations to do more with less. Leaders there decided to implement JOC years ago to tackle their growing backlog of projects. With the introduction of JOC, project timelines were drastically reduced by 12-14 weeks. And in just one year, Monterey County saved $3.5 million directly attributed to their JOC program.
Florence Kabwasa-Green, Project Manager II for the county, finds the pre-set pricing in the CTC to be extremely beneficial when managing projects. “The nice thing is, if we do come across an unforeseen item in our projects, we’re able to use the job order task catalog to price it out and have an estimate of how much it’s going to cost.” Because the CTC provides specific details for materials and costs, changes can be quickly managed. Florence adds, “There are no surprises. If we see the potential for a change order, we’re able to price it out right away and know exactly what it’s going to cost us. If I need to get funding, I have backup information to explain why it’s costing this much and why this was unforeseen.”
Time Equals Money
The monetary and time savings from implementing Job Order Contracting aren’t just happening in California. Traditional procurement cycles typically take months to complete and require a significant amount of administrative and technical resources. Once a job order contract is awarded, the owner can ask the contractor to perform a series of projects. There is no need to prepare, copy, advertise and distribute bid packages for each individual project, cutting the procurement process down to weeks instead of months.
In a recent study, owners across the country have reported saving, on average, 24 percent in administrative costs compared with other methods, while contractors reported a 21 percent total cost savings throughout the project. Regarding the cost savings, owners most commonly mentioned procurement administrative time, project manager support time, design and drawing costs and decreased documentation demands as main contributing factors to the cost savings. Contractors reported that acquiring and bidding new projects, a decrease in change orders and decreased time requirements most impacted their cost savings.
Stay in the green and on the good side of your finance department by following these construction procurement best practices for future projects. Learn more about Job Order Contracting and how you can get started with Gordian’s expertise.
