Job Order Contract Best Management Practices Matter to all JOC participants.
Job Order Contracting can provide major gains in productivity, quality, project delivery times, and overall satisfaction, if and only if, best management practices are leveraged by all participants. The following information, excerpted from objective third party and internal JOC program audits, demonstrates why Job Order Contract Best Management Practices Matter.
Job Order Contract Best Management Practices Matter – Excerpts from JOC Program Audits.
“We found a significant systemic lack of controls over all key areas of the process, creating an environment that is highly vulnerable to fraud. The lack of formality over processes and procedures, the extensive use of outside consultants for project management, and relatively no internal program reporting, all contribute to creating the high risk environment.
Contractor’s percentage has declined 31% since program inception, significantly decreasing the likelihood contractors are able to make a profit. The current JOC contractor percentages range from .50 to .71, meaning the contractor is contractually obligated to perform work at 50-71% of catalog pricing.
The City’s lack of structure and oversight in the JOC program creates multiple opportunities for program manipulation to occur.
Vague Project Requirements – Beginning with the project proposals, we found scopes of work (SOW) that were vague and lacked sufficient detail to determine if contractor pricing was appropriate. When the detailed work to be performed is not clear, it is difficult for the City to identify when costs have been inflated or are unrealistic. In other JOC programs, proposals are reviewed and priced by an independent source aside from the project manager and contractor, creating a mechanism to gauge whether the contractors’ proposals are reasonable. The City has not established such a control. The poorly designed SOWs have resulted in numerous change orders and cost overruns, occurring in 91% of the projects we reviewed during our 17-month audit period. Approximately $1.9 million ins savings possible if limits had been placed on use of non-catalog items.
Excessive use of non-catalog items – Most JOC programs cap the amount of non-catalog items that can be used in a project. This is because non-catalog items are priced at 110% versus catalog items priced using the JOC contractors’ lower bid percentages (50% – 71%). Long Beach does not have a cap on how much non-catalog items can be used as a percentage of project cost. As a result, 42% of total project costs identified during our audit period were non-catalog items priced at 110%.
Limited City involvement -Project managers are responsible for all aspects of a project, including approval of work performed and payments to all parties. Due to staffing shortages caused by budget cuts, the Department relies heavily on consultants to fill the role of project manager. Of the projects reviewed during the audit, 64% of the project managers were consultants, which is higher than other JOC programs we surveyed. In addition, some of the contracts for which the consultants are working under allow for the firm to provide a variety of services, creating potential conflicts of interest. Overall, oversight by City employees is limited. There are no formal policies, procedures or guidelines over the program, creating inconsistencies in project management and documentation. During our audit, we found no required or comprehensive reporting of key project information to the JOC program supervisor or other Department management. As a result, the City has very little oversight or control over JOC project costs or the quality of work. One major benefit of using a JOC program is that it decreases the time to initiate a project. This is because the traditional procurement method is replaced with bids based on a pre-priced catalog. However, we found the time required to move City JOC projects through the design and proposal phase is significantly longer than the industry standard. The vendor overseeing the pre-priced catalog for JOC programs reports the average industry time to complete project initiation and start a JOC project is 25 days without design and 55 days with design. While it is unclear how many projects during our audit period included design, to be conservative we measured all projects against the 55 day benchmark. Projects costing $4.4 million (34% of total project costs) did not fall within the 55 day timeframe. ….seven projects consisting of $3.3 million in costs took more than 90 days to initiate. Due to inadequate project file documentation, it was impossible to determine why the City’s projects took longer. However, project manager workload and negotiating pricing outside the catalog are two potential reasons for some of the delays.
Issue #1. Program Capacity Unknown – There does not appear to be any analysis on the number and type of projects the JOC staffc an handle at any one time to ensure projects are managed timely and appropriately. Thep ressure to complete projects quickly has resulted in project cost and adequate oversight beingo f lesser importance. We heard a consistent concern from the project managers that there isp ressure to get projects done quickly, reducing the time to deal with JOC contractors during proposal review.
Issue #2. No Project Prioritization – A list of all pending infrastructure needs or a formalized process for prioritizing the pendingp rojects does not exist. This results in the Department of Public Works (Department) reacting versus strategically planning which projects should be completed next. Political pressuresi nvolving the City Council’s annual discretionary funding allocations contribute to the poor planning. These monies are required to be spent within the fiscal year, giving priority primarily based on funding and not necessarily need.
Issue #3. Projects Do Not Fit Criteria – Industry best practices indicate JOC should be used for routine and minor construction tasksa D6nd not large, complex projects that require extensive design or are likely to encounter changes and revisions during construction, … The City’s JOC program is being used to bypass the lengthy traditionalp rocurement process so that projects can be pushed along quickly, regardless of size or type, and without considering if JOC is the best option. Although quick completion of a project is a benefit of JOC, it should not be the only factor taken into consideration. Cost and timing should also be considered to determine if using the JOC program is better than traditional procurement methods for that particular project.
Issue #3a – Large and Complex Projects JOC projects should not exceed $500,000, and currently average $100,000. However,we found examples of projects processed through JOC that exceeded $500,000, some with substantial change orders. Examples include the Belmont Pool Demolition valued at $2.6 million, the Harbor Department’s remodel of new administrative offices totaling $14 million, and the Traffic Management Center relocation costing close to $500,000. These projects appear to be assigned to JOC solely to ensure quicker implementation.
Issue #3b “Saving” ProjectsThe program is being used to “save” projects that initially started outside the JOC program but then developed issues. Instead of ensuring proper oversight and problem resolution with the original contractor, the project is moved into the JOC program so it can be pushed quickly along without adhering to usual City procurement or contract amendment policies.
Issue #4. No Process or Policy – Even though the JOC program has been in place for 13 years, formal policies, procedures, or guidelines have not been established. Without formal policies and procedures, staff who managed or operated within the program did not have guidance on their roles or responsibilities, resulting in inconsistent handling of projects and incomplete documentation.
Issue #5. Poor Program Management Oversight and management of the JOC program by City employees is limited. The City relies on outside consultants to fill many of the project manager positions, but provides little direct oversight to their activities. This is particularly risky given project managers are responsible for all aspects of the project, from selecting the contractor to approving payments, with little accountability … As such, the City would not know if the consultan was personally benefitting or if inappropriate activities were taking place.
Issue #6. No Formalized Reporting – Comprehensive reporting of key project information, such as status, budget/costs, milestone dates, or outstanding issues from the project managers to JOC program management or other Department management did not exist during our audit. This results in very few individuals within the Department being aware of how the program is operating and any potential problems. For example, the supervisor over the JOC program retired at the beginning of our audit and no one else in the Department was adequately knowledgeable of how the program operated.
Issue #7. Bid Percentage Factors at All-Time Low – Since the inception of the JOC program in 2003, contractor’s bid percentage factors have declined 31%. The current JOC bid percentage factors range from .50 to .71, meaning they are contractually obligated to perform work at 50-71% of the catalog price. It is highly unlikely contractors can earn a profit using these low percentages. Many of the contractors have held JOC contracts since 2003. Their long-term relationship with the City and experience with the JOC program likely influenced the decline in bid percentage factors.
Issue #8. Warning of Risk Ignored – In December 2014 (just before the last JOC contracts were approved), the JOC program manager received a letter from The Gordian Group (Gordian Group), warning the City to reject all bids because the factors bid by the contractors were too low for the program to operate as intended.
Issue #9. Lowest Percentage Factors in Survey – We surveyed five agencies in Southern California that also use a JOC program and found the City’s current bid percentage factors are the lowest among the agencies surveyed. While the other agencies also have concerns over low factors (in addition to non-catalog items and proposal review), they are more pro-active finding solutions to mitigate or lower the risks. This is different from the City, which appeared to be unaware of the significance of the problems and was not looking to change the risky situation.
Issue #10. Contract Amount Exceeded – The JOC contractors are awarded a spending authority limit, which is then established in blanket purchase orders (BPOs) so payments can be processed. During the audit, we found that the BPO amounts exceeded the spending authority by $13.6 million. A separate BPO for $13.6 million was established by the Harbor Department (Harbor) when it received approval to use the JOC program for improvements for the interim Port headquarters building; however,the City erroneously added the same $13.6 million to the non-Harbor BPO, thereby doubling the authority amount granted to the contractors. With this additional authority, the City paid a JOC contractor approximately $1 million more than the approved JOC contract amount. Further review found that the $1 million was charged to the JOC program, although costs did not actually relate to JOC projects. The payments were for costs associated with another separate contract the JOC contractor had with the City and should not have been paid through the JOC BPO. This situation is an example of the City’s poor contract administration and lack of adequate program reporting that should have captured this error.
Issue #11. Lack of Transparency Communication to Council regarding contract terms and contract extensions has not always been clear and transparent. For example, the former JOC program manager chose to renew the contracts early, before his retirement, even though there was still $3.9 million of spending authority remaining on the current contracts. The early renewal awarded the JOC contracts an additional $17.5 million in spending authority and created an overlap in terms causing some contractors to have two contracts in place at one time. It is unclear if Council understood they were creating an overlap in contract terms and spending authority, because this issue was not adequately discussed in staff report to the City Council.
Issue #12. Contract Terms Not Updated We found conflicting language within the contract and bid specifications. The audit clause language within the JOC contract documents is inconsistent and outdated,,.. The audit language in the bid specifications is similar to the standard audit clause language used in current contracts. However, the audit clause in the contract is restricting and states the City only has the right to audit if the contract is funded with federal, state or county funds. We expressed our concern over the conflicting language, however, the City stated the terms were not conflicting and there was not a problem. Not only does the conflicting language create confusion but could be problematic if the right to audit were challenged.
Issue #13. Training Needed for Project Managers The JOC program does not provide training for project managers to ensure they maintain sufficient controls necessary for the program to operate as designed. This includes the critical function of properly reviewing contractor proposals to ensure the City is paying a fair price for projects. Agencies we surveyed recognize the importance of the project manager role and have developed specific training academies or programs providing skills needed specifically for managing JOC projects.
Issue #14. Vendor Did Not Provide Required Training Services included in the City’s contract with Gordian Group require the vendor to provide the City with ongoing training regarding JOC program management. However, training was not provided even though Gordian Group account manager during the audit period was aware of the program issues and the challenges faced by the project managers.
Issue #15. Poor Scope of Work PreparationThe City prepares a project’s detailed scope of work (SOW), which should serve as the roadmap for the JOC contractor to build an accurate and thorough cost proposal that meets the City’s needs. Based on projects we reviewed, the SOW did not always contain comprehensive information of project requirements. We saw instances where the SOW had only a general description and did not detail the necessary components of the project. Vague SOWs create an opportunity for the contractor to manipulate project costs to their advantage as the City appears not to have clarity of project requirements or expectations.
Issue #16. Project Cost Overruns Inadequate project planning and poorly designed SOWs led to numerous change orders and cost overruns. Table 5 illustrates the significance of change orders in a sample of projects over $100,000.
Issue #17. Manipulation of Catalog Items During the audit, we heard a recurrent concern from project managers that JOC contractors regularly inflate proposals, since it is impossible for them to make a profit with the low bid percentage factors. This requires the project managers to spend additional time negotiating with the JOC contractors to arrive at a reasonable price agreed to by both parties. However, there is no guarantee the negotiated prices accurately reflect the catalog items or quantitiesneeded to perform the work. Ultimately, this means the project costs are no longer competitively bid, and the City is paying more than contractually obligated.
In April 2013, a former City project manager issued a letter to a JOC contractor, New Creation Builders. The letter alleged New Creation Builders was padding proposals by manipulating the catalog and quantities to inflate proposal costs. The JOC program manager at the time was copied on the letter; however, the City, through other project managers, continued to give $3.8 million in work to the contractor, with $15.7 million paid to them since inception of the program in 2003. The City accepted New Creation Builders’ bid percentage factor of .50, which was the lowest contractor bid in January 2015.
Issue 17a. Better use of Catalog Pricing The catalog was originally developed specifically for the City using local market pricing and contains over 100,000 task items. Given the volume of the catalog, it requires someone with a level of expertise within the construction industry to properly break down projects to a level of detail where the catalog can be used appropriately. Some agencies we surveyed tend to “bundle” items that are used together frequently to make it easier to use the catalog. However, the City does not currently bundle catalog items, making it very time consuming to use the catalog correctly. Because there is a strong emphasis on quick project implementation, the extra time needed to price items correctly is a deterrent for all parties.
Issue #18. Excessive Non-Catalog Items ….Other JOC programs we surveyed institute a cap or maximum of non-catalog items that can be used in any project. However, the City places no cap on the quantity or frequency of use o fnon-catalog items.percentage.
Issue #18a. No Independent Quotes
Issue # 18b. Vague Product Descriptions
#18c. Poor Management of Catalog Issue #19. City Preferred Vendors and Items….
Issue #20. Insufficient Project Files The Department does not specify what documentation or information should be retained in the project files, leaving it solely up to the project manager. We found inconsistent and often insufficient documentation within project files.
Issue #21. No Formal Project Close Out A formal close out process helps to ensure that project quality meets City standards and appropriate close-out documentation is performed, such as a Notice of Completion. Unfortunately, a formal and consistent close-out process did not occur for JOC projects during our audit period. The City defers to the project manager to decide what is appropriate for each project, which results in significant inconsistencies in handling project close outs.
Issue #22. No Cost or Time Evaluation A post-project evaluation of costs and time would assist project managers with improving efficiency and cost effectiveness of future projects. However, this type of analysis did not occur with projects we sampled. Issue #23 No Evaluation of Subcontractors Subcontractors perform the majority of the work on JOC projects. However, the City currently does not perform a post-project evaluation of subcontractor performance to ensure work was done with quality and to the City’s satisfaction. Instead of just assessing how quickly work was performed, an effective evaluation or scoring of subcontractors would include multiple areas, such as communication, responsiveness, and quality of work.
Issue #24. Excessive Access to Files A web-based software, eGordian (formally ProGen), is used by project managers to access the catalog and develop project SOWs. The data in eGordian serves as the City’s official list of JOC projects. During our audit, 33 individuals had access to delete and edit data within the system. However, eight of these individuals are no longer City employees,including one who left the City over 5 years ago. It is apparent that the Department is not monitoring access levels or assessing whether it is appropriate for the user to have access at all.
Issue #25. Numerous Parties Involved It is common practice for JOC projects to have several parties involved in the project, including numerous layers of subcontractors. With no mechanism to detect potential excessive costs or inappropriate relationships between the parties, the risk of fraud is very high.
Issue #26. Subcontractor Information Not Disclosed The contracts require the JOC contractor to perform at least 20% of the maximum contract amount, including all work in the contractor’s designated trade. JOC contractors essentially function as job brokers performing a small percentage of the actual work.
Issue #27. Vendor Conflict of Interest
During the audit, the City’s Gordian Group account manager held a contractor’s license which was not disclosed by the account manager to the City or to his employer. Given the lack of information and documentation held by the City on subcontractors, it is unknown if this company was functioning as a subcontractor within the JOC program. If this was the case, there would have been the potential for this person to personally benefit from increased project costs.
Issue #28. Use of Consultants Project managers are responsible for all aspects of a project, including approval of work performed and payments to all parties working on the project. Due to budget cuts, the Department has turned to the use of consultants as project managers. Of the projects we reviewed, 64% of project managers were consultants, many of them former City employees.
Issue #28a. Consultants Reporting to Consultants While use of consultants may be necessary, there are risks associated with allowing consultants to have total control over a project with little to no City oversight. We noted a project where the consultant acting as project manager reported directly to another consultant instead of reporting directly to the JOC program manager.
Issue #28b. Consultant Role Not Defined The project manager has a high level of authority over the decisions and management of the project. However, that role has not been sufficiently defined… his creates a gray line between the roles of the project manager and the contractor.
Issue #29. There are a wide range of consulting services that can be provided via the City’s “as-needed” contracts and use on JOC projects, such as project management, design, inspection, engineering services and construction management. There are no JOC program controls to monitor or prevent multiple consultants from one consulting firm working in different capacities on the same project. Allowing this to occur could create a potential conflict of interest… While we understand the need to occasionally supplement City staff, allowing consultants from the same firm to function in different roles on a single job creates the opportunity for the firm to have multiple ways to benefit from increased project costs. The audit found that some SFPUC practices are inconsistent with the intent of the JOC program and that SFPUC’s administration of the program has some weaknesses. Further, the JOC program inadequately assesses contractors’ qualifications, resulting in a heavy reliance on lowest bid criteria when awarding JOC contracts; and inadequately monitors the quality and performance of contractors’ work. The program also does not consistently and promptly inspect JOC projects and ensure that project managers submit contract evaluation forms on time.
Some SFPUC practices undermine the intent of the JOC program and make it vulnerable to abuse. SFPUC could better administer the program and better assess the quality and performance of JOC contractors.
The audit found that:
- SFPUC’s JOC program lacks a policy establishing the program’s purpose that could provide staff guidance when determining which projects to authorize for implementation under JOCs.
- SFPUC’s use of JOCs for some projects undermines the intent of the JOC program. The Administrative Code indicates that repair, maintenance, and minor construction projects with costs less than $400,000 should be completed under JOCs. However, four of SFPUC’s JOC projects were not for repair or maintenance and exceeded the $400,000 limit. Also, some evidence indicates that SFPUC may have divided some larger projects into smaller projects and executed them under JOCs.
- Despite prepricing of construction materials and tasks being a practice that helps ensure that the City and County of San Francisco (City) receives competitive pricing for JOC projects, 14 (35 percent) of 40 sampled task orders contained non-prepriced tasks. In eight cases, the non-prepriced tasks represented the majority of the total project costs.
Heavy reliance on non-prepriced tasks reduces the effectiveness of the competitive solicitation process for JOCs.
- SFPUC lacks procedures for choosing among JOC contractors when assigning projects and does not document project assignment decisions.
- The JOC program inadequately assesses contractors’ qualifications, resulting in a heavy reliance on lowest bid criteria when awarding JOCs.
- The JOC program inadequately monitors the quality of contractors’ work. The program does not consistently and promptly inspect JOC projects and ensure that project managers submit contractor evaluation forms on time. Some SFPUC practices undermine the intent of the JOC program and make it vulnerable to abuse. SFPUC’s use of JOCs for some projects undermines the intent of the JOC program. The Administrative Code indicates that repair, maintenance, and minor construction projects with costs less than $400,000 should be completed under JOCs. However, four of SFPUC’s JOC projects were not for repair or maintenance and exceeded the $400,000 limit. SFPUC could better administer the program and better assess the quality and performance of JOC contractors.The Job Order Contract Program Lacks Sufficient Oversight to Ensure Program Effectiveness. JOC program lacks a policy establishing the program’s purpose that could provide staff guidance when determining which projects to authorize for implementation under JOCs. JOC projects were not for repair or maintenance and exceeded the $400,000 limit. Also, some evidence indicates that SFPUC may have divided some larger projects into smaller projects and executed them under JOCs. Despite prepricing of construction materials and tasks being a practice that helps ensure that the City and County of San Francisco (City) receives competitive pricing for JOC projects, 14 (35 percent) of 40 sampled task orders contained non-prepriced tasks. In eight cases, the non-prepriced tasks represented the majority of the total project costs. Heavy reliance on non-prepriced tasks reduces the effectiveness of the competitive solicitation process for JOCs. …lacks procedures for choosing among JOC contractors when assigning projects and does not document project assignment decisions….The JOC program inadequately assesses contractors’ qualifications, resulting in a heavy reliance on lowest bid criteria when awarding JOCs. The JOC program inadequately monitors the quality of contractors’ work. The program does not consistently and promptly inspect JOC projects and ensure that project managers submit contractor evaluation forms on time. We concluded the JOC program was developed with internal control weaknesses, implemented with management deficiencies, and abused by a contractor.
In addition, the JOC consultant, The Gordian Group (Gordian), did not fulfill all its responsibilities under its contract. As a result, the HAKC was not adequately prepared to administer its JOC program.
Inadequate Scopes of Work. Inadequate Independent Cost Estimates. Inadequate Review of Contractor Cost Proposals. Inadequate Staffing. City Project Managers believed that JOC construction costs were higher; however, this was mitigated by savings of staff time and improved response time provided by the JOC Program. …there were an insufficient number of comparable projects to objectively support a conclusion as to whether the JOC Program resulted in overall lower or higher costs. …a number of projects had a high percentage of non-prepriced items to total project costs, which diminished the appearance of cost effectiveness….Task pricing in the Construction Task Catalog reflected current market conditions…No one indicated that the contractor’s adjustment factor was reviewed for accuracy. Nearly half of the Project Managers interviewed could not provide support for the pricing of non-prepriced items. Contractor used an incorrect adjustment factor when extending task costs (one project, three task line items). This resulted in an overcharge of $15,561.40. While the findings discussed below may not, individually or in the aggregate, significantly impair the operations of the Purchasing Department and the JOC Program, they do present risks that can be more effectively controlled. Contractor price proposals were not always adequately reviewed prior to acceptance. A sample of contractor price proposals was reviewed with their respective Project Manager to determine whether the proposals were adequately reviewed prior to acceptance. As a result, it became evident that varying methods were used to evaluate the price proposals.
Most indicated that tasks and quantities were reviewed for reasonableness given the project; others looked at the bottom line, and or discussed the project with knowledgeable personnel to ensure the total cost was reasonable. No one indicated that the contractor’s adjustment factor was reviewed for accuracy. Nearly half of the Project Managers interviewed could not provide support for the pricing of non-prepriced items. Errors in price proposals could go undetected without proper detailed reviews, which could result in overcharges to the City. Work performed on JOC projects that were not based on established unit prices is not consistent with the JOC methodology and diminishes its cost effectiveness. JOC permits the issuance of job orders without competition because the tasks ordered were competed as part of the original award. Non-prepriced items are tasks required by the scope of work, but are not included in the Construction Task Catalog. Contractors are required to separately identify non-prepriced items, provide support for pricing, and obtain approval for inclusion in their project proposals. Because non-prepriced items have not been competitively bid, their use should be kept to a minimum to ensure the cost effectiveness of the JOC program.
Of the 298 job orders recorded in PROGEN (the JOC application), 47 included one or more non-prepriced items. Ten of those were issued due to reductions in the scope of work. The following table presents the ratios of non-prepriced items (NPPI) to total project costs for the remaining 37 job orders:
Percentage of NPPI Number of Projects
Less than 25% 5 projects
From 25% to 50% 5 projects
From 50% to 75% 5 projects
From 75% to 99% 11 projects
100% NPPI 11 projects
Management should improve monitoring activities to ensure the JOC program is only used for projects that meet defined requirements. In addition, systems and processes should be implemented to regularly analyze the dollars spent with each JOC vendor. Data analysis revealed that some vendors currently receive a disproportionate share of the JOC work. While guidelines have been developed to assist in determining when a Job Order Contracting (JOC) project is appropriate, there is currently no systematic monitoring process to ensure JOC projects are awarded objectively and conform to the UT System guidelines. The following risks may occur within the current JOC process, although our review did not identify any specific instances of such:
- The type of project may not be for the “minor construction, repair, rehabilitation, or alteration of a facility,” as required by the guidelines.
- JOCs may be used for time-sensitive projects that would not normally be appropriate under the existing JOC contracting mechanism.
- Absent capability and merit considerations, a JOC Contractor may be awarded a disproportionate percentage of the total JOC work.
- Projects within the same area or location may be split between multiple projects so the spend amount falls under the $600,000 JOC threshold.
In addition, the JOC Contractor Selection Form that is used to collect data about the proposed project does not contain information to assist management in identifying potential exceptions to the guidelines.
While most of the JOC Project Managers appeared more than capable to administer their respective projects, others do not appear to have the requisite background in the various
construction trades to adequately monitor construction. The language used in the Purchasing Procedures Manual, Section 14.0, Job Order Contracting, is unclear with respect to when the
Contract Administration Department’s involvement is required. The Mayor established the Contract Administration Department (Executive Order 2005-1) to enhance “the efficiency and effectiveness of City government” and “provide improved public works, utilities, roadway and infrastructure services to the public.” The new department consolidated the functions that resided in other City departments “relating to the establishment and execution of design and construction of public improvements and related services for such contracts.” “Such contracts” include “design, construction, engineering studies, engineering/architectural and related services type contracts as well as related agreements as assigned by the Administration.” Given the above, JOC Project Managers generally prefer to administer their own projects to ensure timely completion (one of the advantages of the JOC program). While all JOC projects reviewed appeared adequately managed and successfully completed, a few projects, which involved more than a single construction trade and required both permitting and inspections, may have benefited from the oversight of a more experienced Project Manager. Construction deficiencies may go undetected without adequate oversight by someone experienced in the applicable construction trades.
We conducted an inventory audit of cafeteria equipment procured by three Job Order Contract (JOC) Food Services Modernization Program contractors for the upgrade of 64 middle and high school cafeterias. This audit disclosed that a significant amount of units were unaccounted for and excess equipment was ordered as a result of poor project management. There was $385,779 worth of equipment that the District did not receive, $362,755 worth of equipment that could not be accounted for and $1,563,777 worth of equipment that was not utilized or installed at any of the 64 school locations. We recommended that i) the District recover the $385,779 from the contractors, ii) Food Services Branch (FSB) account for the missing equipment, and iii) the JOC Contract Unit and FSB identify current stock of equipment prior to purchasing any additional similar equipment.
We conducted a performance audit of the Job Order Contracting (JOC) Program. JOC is a contracting procedure that allows for the awarding of competitively bid job order contracts based upon pre established unit prices. The California Public Contracting Code (Code) indicates that JoC should be used for the purposes of reducing project costs and expediting project completion. The District’s JOC program is a pilot program for California School Districts, with a sunset date of December 2012. The State Legislature will assess any further exemptions to the school contracting process based on its evaluation of the District’s JOC program.
We found that there were a number of deficiencies in the implementation of the JOC program mainly due to: i) non‐compliance with some of the statutory mandates, ii) a lack of adequate internal controls, checks and balances, and iii) a lack of clearly defined management responsibilities.
We recommended a number of steps to address the issues raised in our audit and most of them are being implemented by the District.
Torres Construction ‐ This audit was requested by FSD and focused on the job orders issued to Torres Construction for FSD’s program to modernize school cafeterias. We found that Torres Construction did not price the job orders properly in accordance with their contract and JOC policies. As a result, Torres overcharged the District a combined total of $1,697,585 for equipment purchases and approximately $2,291,098 for construction and installation work.
MTM Construction – This audit was requested by FSD and focused on the job orders issued to MTM Construction for FSD’s program to modernize school cafeterias. We found that MTM Construction did not price the job orders properly in accordance with their contract and JOC policies. As a result, MTM Construction overcharged the District a combined total of $1,403,747 for equipment purchases and approximately $731,119 for construction and installation work.
FH Paschen/SN Nielsen, Inc. – This audit was requested by FSD and focused on the job orders issued to FH Paschen/SN Nielsen, Inc. for FSD’s program to modernize school cafeterias. We found that FH Paschen/SN Nielsen, Inc. did not price the job orders properly in accordance with their contract and JOC policies. As a result, FH Paschen/SN Nielsen, Inc. overcharged the District a combined total of $2,709,655 for equipment purchases and approximately $2,322,421 for construction and installation work.
The Gordian Group ‐ The Gordian Group has been FSD’s program manager for the Job Order Contracting program since the inception of the JOC program. Our audit examined the billings submitted by The Gordian Group since the inception of the JOC program, and we found that The Gordian Group double billed the District for many job orders and also did not always give the District the proper credit when job orders were cancelled or had a reduction in the scope of work. We calculated approximately $138,000 of overbillings for the period audited. The District recouped this amount by applying
credits to The Gordian Group’s subsequent invoices. The MBE/WBE reporting for the JOC projects indicated noncompliance with the goals, inconsistencies with payment amounts and overdue reporting. As of November 2015, all 10 contractors were not current with the reporting and all reported discrepancies with the numbers. The discrepancies included: not meeting the MBE/WBE goal, no payments reported, subcontractors confirmed payment amounts lower than amount reported as paid by contractor, and subcontractor payment amount disputed.
o Cease the execution of future JOC contracts awarded by CSP project number 14-11-05 and re-bid the project o The Procurement Department required proposers to use The Gordian Group’s Job Order Contracting Solution™ rather than RS Means Facilities Construction Cost Data, but did not solicit bids or perform a cost/benefit analysis to see whichmethod provided the best value to the District. Both sources are used by numerous organizations and are still available. ““We concluded the JOC program was developed with internal control weaknesses, implemented with management deficiencies, and abused by a contractor. In addition, the JOC consultant, The Gordian Group (Gordian), did not fulfill all its responsibilities under its contract. As a result, the HAKC (Housing Authority of Kansas City, Missouri) was not adequately prepared to administer its JOC program. ” The Department is unlikely to attain between $2 million and $3.7 million in cost savings from the JOC program because the program is not being administered as effectively as it should be. Specifically, we found that job orders are not developed in a timely manner, cost estimates are not reliable indicators of the actual cost of work, and construction work is not carried out in a timely manner. Moreover, there is a lack of guidelines that spell out the circumstances and monetary threshold for job order work and a lack of standards for measuring whether the JOC program is, in fact, achieving anticipated cost savings.” The FSD was not making a determination that using job order contracting would result in cost savings for each project before approving the use of job order contracting for its projects. The FSD misused job order contracting to purchase furniture and equipment and pay for storage fees to store excess equipment. The FSD was requiring JOC contractors to pay prevailing wages that were effective on the bid advertisement date rather than the job order issuance date. The FSD was requiring JOC contractors to submit job order award information to an applicable apprenticeship program within 10 days of execution of the job order contract rather than before beginning work on each job order. The FSD did not preclude the firm that assisted it in the development of the job order contract from participating in the preparation of bids with any job order contractor. Facilities Contracts should amend The Gordian Group’s contract to include language that precludes the firm from participating in any job order contractor’s bid preparation. There was inadequate segregation of duties with respect to the activities of the OARs.
Recommendation: The FSD should assign some of the duties performed by the OARs to other staff and make sure there are adequate checks and balances of the OARs’ work. For example, the FSD may consider implementing policies and procedures to:
Require a secondary review of all JOC packages after the OARs review to ensure that the cost proposals and estimates are prepared appropriately and reflect the final detailed scope of work.
Require JCU staff to attend the joint scope meetings.
Require independent estimates to be prepared by a person from outside the location requesting for the work, such as by the Estimating Unit or an outside firm.
Require the estimators to attend the joint scope meetings. The FSD Standard Procedures were not always complied with. The result was thatsome of the job orders did not fully comply with code requirements (e.g. not having an independent estimate, or the cost proposals not priced properly based on the appropriate CTC tasks and quantities) and some of the job orders were overpriced and unreasonably priced, but still approved by the FSD. 12 out of 17 projects we reviewed where overpriced by over 10%; they were overpriced by about $2.5 million in total or 81% on average. The job order amounts for those 12 projects exceeded our estimates by $2.1 million, or 77% on average. There were no policies or procedures requiring the cancellation of a JOC project if the
JOC proposal was found to be unreasonable, not cost effective, or undesirable. “TGG overbilled the District $138,204 … for licensing and service fees.” “TGG did not always correctly determine the adjuectment factors correctly..” SFPUC’s use of JOCs for some projects undermines the intent of the JOC program. The Administrative Code indicates that repair, maintenance, and minor construction projects with costs less than $400,000 should be completed under JOCs. However, four of SFPUC’s JOC projects were not for repair or maintenance and exceeded the $400,000 limit. Also, some evidence indicates that SFPUC may have divided some larger projects into smaller projects and executed them under JOCs. • Despite prepricing of construction materials and tasks being a practice that helps ensure that the City and County of San Francisco (City) receives competitive pricing for JOC projects, 14 (35 percent) of 40 sampled task orders contained non-prepriced tasks. In eight cases, the non-prepriced tasks represented the majority of the total project costs. Heavy reliance on non-prepriced tasks reduces the effectiveness of the competitive solicitation process for JOCs. • SFPUC lacks procedures for choosing among JOC contractors when assigning projects and does not document project assignment decisions. • The JOC program inadequately assesses contractors’ qualifications, resulting in a heavy reliance on lowest bid criteria when awarding JOCs. • The JOC program inadequately monitors the quality of contractors’ work. The program does not consistently and promptly inspect JOC projects and ensure that project managers submit contractor evaluation forms on time. In 2006 SFPUC awarded its JOC consulting services contract to The Gordian Group, the sole responsive, responsible bidder, to create construction unit price books for the SFPUC’s multiple bureaus and enterprises. Each of The Gordian Group’s price books is known as a Construction Task Catalog® or CTC. Compensation for The Gordian Group’s services is 1.75 to 1.95 percent of the total costs of each project completed using JOCs. Recommendations The audit report includes 19 recommendations for the SFPUC to more effectively administer and monitor its JOC program. Specifically, the SFPUC should: • Establish a policy for the JOC program that specifies the intent of the program and may inform project authorization decisions. • Not authorize projects that rely heavily on non-prepriced tasks. • Use qualified staff to evaluate contractor qualifications and weight qualifications more heavily than lowest bid when awarding JOCs. • Develop procedures for assigning projects to JOC contractors and document project assignment decisions. • Consistently inspect JOC contractors’ work and ensure that project managers submit contractor evaluations on time. The review objectives were to determine whether the San Francisco Public Utilities Commission (SFPUC) used and administered job order contracts in accordance with the San Francisco Administrative Code (Administrative Code), and whether SFPUC effectively administers and monitors its job order contract (JOC) program. The audit found that some SFPUC practices are inconsistent with the intent of the JOC program and that SFPUC’s administration of the program has some weaknesses. Further, the JOC program inadequately assesses contractors’ qualifications, resulting in a heavy reliance on lowest bid criteria when awarding JOC contracts; and inadequately monitors the quality and performance of contractors’ work. The program also does not consistently and promptly inspect JOC projects and ensure that project managers submit contract evaluation forms on time. “We found significant weaknesses in the Department’s administration of the JOC program. Specifically, the Department does not have adequate procedures to ensure that required project documentation was submitted and approved. Moreover, the Department lacks any written policies or guidelines that spell out the circumstances—including a monetary threshold—under which the use of job order contracting is appropriate. Further, the Department has not ensured that inspections of proceed order work are adequately conducted and documented by reports, daily logs, and photographs. These weaknesses have led to contractors being assigned work outside their contract locations and contractors not completing all required work, not performing work satisfactorily, and not completing work on time.” “We found problems with the Department’s mainframe computer system PASSPORT and the Division’s PROGEN databases.” “The Department’s response attempted to obfuscate the serious issues raised in the report by speculating that the auditors do not understand the job order contracting program; by contending that the opinions expressed in the audit were predicated on the auditors’ “philosophy”; by submitting information that contradicts documentation in its files; and by providing irrelevant information. Clearly, the Department has failed to understand the salient conclusion of this audit report—that the Department has not properly managed the administration of the JOC program. In addition, the Department does not have a system in place to review “Construction Task Catalog” prices that are used to determine the cost of JOC work. Our own independent review found a wide fluctuation in those prices. While some work cost up to 41 percent more than industry standard pricing, other work cost up to 47 percent less. Consequently, we cannot conclude with certainty that the cost of JOC work is reasonable.
County Divisions reviewed did not comply with contract provisions for issuing purchase orders under the job order contract. Specifically, we noted that work was not priced in accordance with contract terms and dollar limits were exceeded. …controls over the review and approval of price proposals, including whether the items proposed were needed to perform the agreed-upon scope of work and whether the price proposed and paid represented an appropriate amount for the actual work performed, were not adequate. A limited understanding of the R.S. Means database by staff and contractor alike led to errors when preparing proposals.”
Sources:
Job Order Contract Audit Report May 25, 2016 The Job Order Contract Program Lacks Sufficient Oversight to Ensure Program Effectiveness 12/26/2012 Job Order Contracting (JOC) program at the Housing Authority of Kansas City, Missouri (HAKC) JOB ORDER CONTRACTING AUDIT 10-01 13-221 Job Order Contracts JOC MD Anderson Cancer Center Facilities Departments – Patient Care and Prevention Facilities (PCPF), Research and Education Facilities (REF), Capital Planning & Management (CP&M) and Administrative Finance Campus Operations (AFCO). Audit Manager: Paul Pettit LAUSD Annual Report Job Order Contracting (JOC) Contract #11-28-043 Internal Audit Report Job Order Contractors for General Construction – Major and Minor Projects – CSP project number 14-11-05 Report: 98-KC-204-1001, Housing Authority of Kansas City Job Order Contracting Program Kansas City, Missouri Audit Report on Job Order Contracting 7E11-120A, New York City Comptroller Contract Audit Report Performance Audit Job Order Contracting Program CA 09-865 October 17, 2011 Contract Audit Report, Incurred Cost Audit, Contracts 0590008 and 1090001 The Job Order Contract Program Lacks Sufficient Oversight to Ensure Program Effectiveness – Controller’s Office, City Services Auditor (CSA), Nancy L. Horn, Director, Assurance & Internal Controls, San Francisco Water Power Sewer (SFPUC) Audit Report onf Job Order Contracting by the Department of Education FR05-139A City of New York Division of School Facilities (Division) Orange County’s Job Order Contract. Purchase orders and related expenditures awarded under the Job Order Contract by the Capital Projects Division and the Facilities Management Division. The period reviewed was October 1, 2010 through June 30, 2011.
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