I sat in an interesting conference presentation earlier this summer. The entire premise was to compare the purchase of Job Order Contracting to the purchase of toilet paper—complete with props of toilet paper rolls, a picture of house that had been teepeed (that was the illustration of getting ripped off in your construction purchase), etc. Now I have to begin by saying that the presentation actually had some really informative content and it was presented by someone who has a lot of experience with JOC and works for a company that I respect.But I took huge exception to the comparison of Job Order Contracting to toilet paper. Maybe it is because I have often used the same example to explain why purchasing JOC, or any complex construction service, is not the same as purchasing a commodity (As in “It’s not like buying toilet paper!”) For me, it pointed up an important philosophical debate when it comes to JOC, or any alternative project delivery method, which I thought was worth discussion.
Is construction a commodity? In some provocative dialogue after this presentation, it was argued that a specified doorknob is a specified doorknob—it is a commodity just like toilet paper. The definition of a commodity is a product that is sold by all suppliers without differentiation. The low-bid approach follows that definition. Materials and even construction means and methods and tolerances are prescribed, and the lowest-priced contractor is selected based on the assumption that there is no differentiation between contractors—they are interchangeable and it doesn’t matter who is installing your doorknob, so you might as well get it for the cheapest price.
Except it really does matter a lot who is installing your doorknob. It matters in the quality of installation. It matters in whether the right doorknob was even selected in the first place. It matters whether the installer is accommodating your ongoing operations and working with your end user when they install that doorknob. And it matters whether you have a contractor who will come take care of any warranty concerns on that doorknob without hassle. Now amplify that into a Bio-Safety Level 3 lab, or a time-sensitive school renovation, or any complex project, and the contractor matters even more.
AGC’s Legislative Platforms asserts that construction should not be treated as a commodity. “Construction must be addressed as a service because of the site-specific and design specific distinctions for each construction project, unlike manufacturing which is a repetitive, rarely changing process.” JOC and other alternative delivery methods raise the stakes beyond just the site specific distinctions. They recognize that the contractor has an important role to play in planning and managing the process, and that it takes creative thinking to bring the best, unique solution to each and every project. (I actually think this is one of the things I like best about construction—each and every project is different and demands a different solution, calling for continuous growth from construction professionals.)
So I think owners should carefully consider what they believe about construction before plunging into JOC. If you believe it is a commodity, then why do anything other than low-bid? But I think that most owners who are considering JOC and alternative delivery methods are looking for a better way because they recognize that construction is not a commodity, but a professional service.
Owner's fall into two categories: those that expect and allow their contractors to contribute as a solution oriented partner, and owners that expect the contractors to simply be the strong backs to perform the work they direct. The former recognize the value of a competent partner and are willing to consider value in relation to the cost of the construction work, and the latter are simply interested in how cheap the work can be done. If contractors want to be treated (and compensated) as value added partners, they need to add value. JOC offers significant opportunities for Contractors to add value, far in excess of the other delivery methods, however, & unfortunatetly, very few of the "JOC" contractors today are organized to consistenly add value through project optimization, value engineering, or responsiveness (some exceptions are noted). Customers as well, seem to have a very difficult time distinguishing between true value added JOC contractors, and the myriad of firms entering the JOC business.
ReplyDeleteGreat commentary, GSS. Two types of contractors and two types of owners. I see this clearly when a low-bid contractor tries to tackle JOC without really understanding the value proposition. Also when an owner who commoditizes construction implements Job Order Contracting (like buying toilet paper). I sincerely believe that we are called to go above and beyond every day. I talk to my operational teams about "earning our margin" by providing something more than an owner receives in the low-bid market. So how do we get owners and contractors alike refocused on the added value, how to discern it and how to deliver it? Hmmmm . . .
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