Clay Kline is senior product manager for AssetWorks, Inc., a provider of software solutions for infrastructure-intensive organizations, and is based in San Antonio, Texas. He previously worked for the Spring Branch School District in Houston, Texas, Brown & Root, and the U.S. Air Force, where he was a base civil engineer. He is a member of APPA's K-12 Task Force and can be reached at ckline@assetworks.com.
One of the most daunting tasks a facilities professional has to deal with is an increasing deferred maintenance backlog. Few maintenance organizations have sufficient staff and funding, yet these organizations still must find ways to deal with a budget that has been "straight lined" or kept the same for the third or fourth year despite an increase in square footage responsibility. In this environment, you spend hours trying to readjust priorities, only to have more maintenance issues added to your plate.
As we try to deal with this situation, we often struggle to make limited dollars stretch, and we cringe as large portions of the funding we do have are consumed by fees and overhead charges. Also, we struggle with finding ways to obligate or encumber funding and execute projects. Typically, the normal "bid" process takes close to 180 days from the time you start design to the time that you finally give the contractor "notice to proceed." And since many of your deferred maintenance projects are small (less than $1 million, and usually in the $50,000 to $250,000 range), you have to deal with the problem of "quality contractors," or should I say less-than-satisfactory performance by contractors. This is particularly true, since just about anyone with a pickup truck and a tool belt can bond a $250,000 project. As a result, you have a lot of rework, contract management time, and costs that are often higher than budgeted.
In an effort to overcome these problems, a number of years ago the Army developed a program called Job Order Contracting, or JOC. This program has since been adopted by the Department of Defense and many other government agencies. It has also been gaining popularity in the county and local government arenas as well as the university and K-12 markets. JOC is also known as SABER (Simplified Acquisition of Base Engineering Resources) in the Air Force, but is more commonly called DOC or Delivery Order Contracting outside the government arena.
The DOC methodology has been successful as a tool to provide a cost effective, efficient, and quality contracting method that overcomes the often acrimonious environment experienced with the normal "low bid" contract. In addition, it is a performance-based contract that provides incentive for the contractor to do good work in a timely and responsive manner. DOC is a "team" approach to construction that reduces acquisition costs and time and improves response and quality.
What is Delivery Order Contracting?
A Delivery Order Contracting (DOC) is a competitively bid, indefinite quantity, indefinite delivery, general construction contract between a facility owner and a construction contractor. The contract typically has a base year with two to four option years. The contract sets parameters such as the types of work that can be done, location of the work, design criteria and maximum amount of work to be awarded. The contract also has a unit-price book (UPB) with associated specifications that establish a unit price to be paid for each of a multitude of construction line items. A typical UPB (Figure 1) has more than 40,000 line items and covers almost every construction task. Items that are not in the UPB can be negotiated, priced, and added to the UPB at any time. The contractor then "bids" a coefficient that is a markup or markdown to the items in the UPB, rather than a dollar price.
What you then get with a DOC contract is an on-call general contractor where prices for line items of work are predetermined. So when you have a work requirement, you notify the contractor, you conduct the site visit, the contractor develops a cost estimate based on the UPB, you negotiate the delivery order (in other words make sure that line-item selection and quantities are correct), and then issue a delivery order. The contract is easy to manage. However, initially the concept may be difficult to grasp, so let's look at DOC in more detail.
Since DOC is a performance-based contracting method, it is usually solicited using a Request for Proposal (RFP) format so you can evaluate and select the contractor based on performance measures you establish. These are usually a combination of technical expertise, experience, past performance, quality, and price. But if your state procurement laws do not allow use of an RFP methodology, a DOC can also be acquired by a more traditional Invitation for Bid (IFB). I will discuss both of these approaches in more detail later.
The actual DOC solicitation typically involves the owner specifying a minimum dollar amount of work during the base and each of the following contract option years, usually $50,000 to $200,000, and then defining a potential maximum dollar amount of work each year. These minimum and maximum dollar amounts are often referred to as "volume." The maximum should be significantly higher than the minimum, but it should also be realistic. The potential maximum provides the contractor with a powerful incentive to perform. Maximums reach from $1 million to $15 million or $20 million per year, and are usually in the neighborhood of $5 million to $7 million.
The higher and more realistic the maximum and the more potential option years, the lower the "bid" coefficient you will see. The reason for this is that a DOC contractor experiences his highest costs in the initial contract years as he hires and trains his staff, sets up his facilities, acquires necessary estimating hardware and software, and provides the owner any specified hardware and software under the terms of the contract. This results in a profit margin that is initially lower in the first years and improves with increased contract volume over time. With this in mind you can see that the higher the potential volume and the greater the number of possible option years, the lower the coefficient.
The DOC contract, which is composed of the contract documents, unit price book (UPB), and specifications provide the necessary contract "boilerplate," thus avoiding the necessity of preparing and issuing these documents repeatedly. This reduces acquisition time and effort since specifications and pricing are already in place. All you then do is "issue" delivery orders against the contract. To issue a delivery order all you have to do is notify the contractor of a requirement and then walk the site and discuss the statement of work. The contractor then prepares a cost estimate, using the UPB, any required drawings or plans, and a schedule. This constitutes a "proposal," that you review to ensure the scope is covered, ensure line item selection and quantities are correct, and negotiate any adjustments. When this is complete, a final proposal is submitted and you issue the contractor a "notice to proceed."
It is not unusual for a DOC contractor to provide design support for a client, if desired. If design is required, 100 percent design and full documentation is not necessary since the DOC contract specifications cover these items. As a result, execution of work requirements are far quicker than traditional contracting methods. As can be see in the chart in Figure 2, work on a DOC delivery order requiring design usually starts 70 days before work done under the traditional design/bid/build method. And when minimal or no design is required, DOC is almost 150 days faster.
Why Should I Have a DOC?
Now that we have had an overview of what DOC is, let's talk about why you should have one. As can been seen from the timeline, DOC lets you compress the acquisition time for projects and enables you to be more responsive to your customers. Since all the upfront documents and procurement is complete, you only have to define the scope of work, and develop, estimate, and negotiate the final proposal.
When I was responsible for facilities at a large metropolitan school district, a new computerized science curriculum was proposed for the high schools. It was presented to the school board in late April, and after the end of the presentation, the superintendent of schools announced that the program would be available at the start of the next school year in early August. The only problem was that this program would require increased power and cooling to the science labs as well as additional local area network wiring. Since the program was only a plan, there had been no design accomplished—only rough cost estimates. With the standard design/bid process, there was no way we could deliver in time. Luckily we had a DOC in place. We called the contractor, did the walk through, and defined the scope of work. The contractor provided us an estimate and was given notice to proceed. All work was completed by the end of June, in time to allow the teachers a month to train on the new system.
One example that show the effectiveness of DOC is a case studies from Northeast Independent School District (NEISD) in San Antonio, Texas. NEISD was in the processing of installing elevators in three schools to bring them into ADA compliance. Design was started in late January 1995 because NEISD had the chance to fund one of the elevator projects using federal funds, provided the project could be completed by the end of September that year. Northeast had recently awarded a DOC in mid-May, and they removed one of the elevators from the design package and assigned it to their DOC contractor.
As can be seen in Figure 3, that elevator was accepted in time to receive federal funds. The other two elevators proceeded using the normal design-bid process and were completed and accepted 174 days after the DOC elevator. The cost savings of $4,000 using the traditional bid process did not justify the loss of time.
Finally, DOC can produce a win-win contract relationship. Since the contract value is based on performance, the contractor has an incentive to perform at the highest level. This means not only improved quality, response, and timeliness, but also, since the contractor is in it for the long haul, there is a real incentive to value engineer and look out for the best interests of the customer. Where traditional contracts can result in acrimonious contract relationships at best, DOC engenders a true "team" approach. One example of where DOC truly excels is during emergencies. Since costs are fixed in the UPB, and the contract is there to serve and perform, you can react quickly without fear of "being taken to the cleaners" later when you finalize costs.
How Do I Get a DOC?
Now that you are convinced that DOC has something to offer and can help improve your facilities operation, the next question is how to get a Delivery Order Contract. DOC can be procured using an IFB, "low bid" approach, or an RFP, "best value" approach. An RFP selection is the best method, but if you are not allowed to use that approach, you can procure a DOC in the traditional bid method.
In all cases, you need to establish what your guaranteed minimum volume will be and also determine a realistic maximum. It does not make sense to say you will have a maximum of $10 million per year, if you have funding only to do $3 million. So be up front and realistic. As a rule of thumb, 75 percent of your usual minor construction, repair, renovation, and alteration dollars could be considered as a potential maximum. You also need to determine what the contract term will be. Typically, it is a base plus two to four option years with the right to exercise the option years being the owner's choice.
You also need to determine what you will use for your unit price book. The R.S. Means Facilities Construction Cost Data is the most common UPB used, but there are also price books available from other vendors. Along with the price book, it is important to determine what specifications you will use. There are commercial as well as "public domain" versions that can be used and then tailored to include specific "owner" requirements/specifications. There are also software solutions that automate your UPB and will allow linking of specifications to the line items in the UPB. Using a software package speeds the DOC operation and provides a method to track all activity.
In addition, if you select a software package that integrates DOC estimating and management with Computerized Maintenance Management System (CMMS) and Facility Condition Assessment (FCA), you can develop a system that links all parts of your on-demand and deferred maintenance problem. This allows you to pull items from your FCA into your CMMS, estimate them and execute them as a DOC delivery order, track the progress and costs, and then flow these costs back to your FCA database to update your deferred maintenance backlog. Incidentally, if you do not have a system that can do this and you have the funding to award a large enough DOC contract, you can get the contractor to pay for the software and hardware for such a system.
Finally, you need to determine what criteria are important to you and will be used to evaluate the qualifications of your prospective contractor. A good source of information on this topic is Arizona State University's Performance Based Studies Research Group. Their website is www.eas.asu.edu/pbsrg.
With the upfront issues out of the way, let's discuss the Invitation for Bid, or bid approach, first. If you use an IFB, it is critical that you clearly state the qualifications and capabilities that you require. If possible, use a two-step method where you first take all solicitation submittals, create a short-list, and then ask for a "bid" from those that are qualified. You then award based on the "lowest" bid. The qualifications you need to consider are discussed in the RFP selection process, but it is essential that you spell out what experience and capability the contractor needs to have to perform a DOC.
Also, it will be necessary to have a mandatory pre-bid conference where you explain in detail the concept of DOC and the types of work the contractor will be required to perform. All questions and responses should be provided to all bidders. Also, when developing the "short-list" or making selection, make sure that you rigidly stick to your qualification requirements. The IFB approach is more difficult and not the best way to procure a DOC, but it can be successful.
If your contracting regulations allow the use of an RFP, then you should definitely do so. Your goal is to get a contractor who will perform and provide you with the best value. If you use an RFP, you must decide what stages you wish to use. The usual stages are a technical proposal submission (containing information on the contractors technical and performance capability), followed by a short-list and then a cost proposal submission (containing the required cost coefficients that will be applied to the UPB pricing). The technical and cost proposals can be requested at the same time, but the costs proposals should be sealed and should not be reviewed until after the technical review and ranking is complete. Also, you can ask for best and final costs from the top contractors. If you do, you should not make costs from vendors public until after best and final is complete and a final selection is made.
As you can imagine, it is best to set up an evaluation committee, composed of interested parties. The committee should jointly establish the scoring criteria for use in evaluation of the technical proposals. It is also valuable to establish weighting for your criteria, including cost. After you have completed the technical evaluation, all you have to do is "plug" the costs into the equation and you have your top vendors.
The criteria used often include the number and dollar volume of DOC or similar contracts, past performance, ability to manage multiple contracts and multiple subcontractors, financial capability, plus other issues you may consider critical. Using the RFP methodology helps ensure you truly get the "best value and performance," including both technical ability as well as price; not just lowest price, which, as you know, is "not always the best deal in town" and often brings lots of headaches.
How Do I Make a DOC Succeed?
Once you have your DOC contractor on board, how do you make it a success? Use best practices in the operation of your contract. First, within the limits of your contracting constraints, try to make a "best value, performance-based" selection. This will ensure that you select a contractor who can handle a large number of diverse projects in a quality manner.
Next, you need to develop a "team" environment. DOC works best in an open partnered environment. This means you need not only have a contractor that knows what DOC is supposed to be, but you also need to teach your staff what DOC is, what it can do for them, and how it should work.
Once you start to give the contractor delivery orders, i.e., orders against the base DOC contract, get the contractor involved up front. Walk the job site and involve the contractor in scope development. That provides an opportunity for the contractor to perform "value engineering"—looking at approaches and construction methods and making suggestions that will reduce costs and improve delivery.
Finally, and probably the most important, communicate! Communicate with the contractor, communicate with your staff, and communicate with your customer. Let the DOC contractor know what jobs you have coming and the timeframes they will need to be performed in. If asked, most DOC contractors are more than willing to provide cost estimates in advance for potential end-of-budget-year funding. Take advantage of this; it will really improve contract execution. Make sure the DOC contractor really knows what your goals are and that he is matching up to them. Have regular status meetings and review all delivery order statuses: those under construction, those being estimated, and those coming down the pike. Equally important to your relationship with the contractor is your communication with your customer. DOC contractors are superb at doing this. The results of the 1998 survey of DOC contracts performed by the Center for Job Order Contracting Excellence (CJE) at Arizona State University, www.eas.asu.edu/joc, found that on a scale of 1-10, DOC contractors customer service and public relations rated an 8.54!
The Bottom Line
The bottom line is that DOC is a superb tool in today's facility manager's toolkit. It has been used successfully in the government, Department of Defense, U.S. Postal Service, National Institutes of Health, and others. Its use is growing in education; currently DOC is being used at over a dozen K-12 and university sites and is under procurement at several others. It is a contracting method that can increase your ability to meet rising maintenance backlogs, respond to critical customer needs and wants, improve quality and responsiveness, reduce change orders, and put more dollars into "hard construction" instead of soft upfront costs.
In case you are not sure about DOC yet, consider this final example from the 1998 CJE survey:
How would you rate the efficiency of your JOC/DOC contract compared to other methods of project delivery?
With results like this, can you be without Delivery Order Contracting?