Performance Bonds for the Job Order Contract

If you are a contractor doing business in the public arena, you understand there is no such thing as guaranteed work. That is, unless you can secure a Job Order Contract, or JOC. Well, this is the conventional wisdom. These popular contracts are attractive to both contractors and the public agencies that issue JOCs, due to the fact neither party has to go through the time consuming and costly competitive bid process for many small contracts. Rather, contractors bid once on a per unit fee and have a chance to work for an owner performing several small purchase orders over a period of time, usually 1 to 3 years. What many contractors fail to realize are the pitfalls of JOCs. Some include:

•  JOCs can tie up your bond capacity. These contracts have a maximum contract value, usually with no minimum guaranty. A surety underwriter must qualify, and charge premium, on this maximum contract value. With no guaranteed minimum, stretching your bonding is calculated risk a contractor must consider.
• The bond premium is often paid up front. Though ultimately premium is based on final contract price, tying up several thousand dollars without actually knowing what return you will get can stunt your growth.
•  Contracts are long. You may like the idea of a 3 year contract, but when you are paid based on a per unit price based on the bid to secure the project, you could be paying for an estimating mistake over a period of time, rather than just for a specific project.

Don’t get me wrong, JOCs can be great for the growth of your company, can sometimes change your company’s future, but you must give serious consideration to the potential pitfalls of a job order contract and implications to bonding capacity.  Performance bonding for JOC’s can be unique.   Having a professional surety bond agent that understands the implications of the JOC is vital to maintaining a viable bond line.