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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.

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2 thoughts on “Performance Bonds for the Job Order Contract”

  1. Dear Sir/Madam:

    I am providing consultancy services to a company that is preparing a bid in response to a US Government Job Order Contract (JOC) for 5 years. The contracting official requires a letter of commitment from a USA bank per Federal Acquisition Regulation in FAR 52.228-14. Please refer me to a representative to discuss how to satisfy the contracting officer’s requirement given the following conditions : To be clear, the requirement of proof of ability to obtain surety in the amount of $3 million is for purposes of this selection factor only and is separate from the performance and payment surety requirements that the Contractor will have to meet after award; however, the proof of ability to obtain surety must relate directly to this solicitation—be proof of ability to obtain surety for this contract if it is awarded to the offeror. The amounts of the performance and payment sureties will be affected by the offeror’s proposed order prices and the prices at which orders under the contract are awarded. FINANCIAL INSTRUMENTS SHOULD NOT BE SUBMITTED BEFORE AWARD; THIS FACTOR REQUIRES ONLY PROOF OF ABILITY TO OBTAIN ADEQUATE SECURITY FOR FUTURE PERFORMANCE AND PAYMENT BONDS.

    1. John says:

      We can help you. please call us at 877 654 2327. I will email you as well.

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