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Reducing Construction Costs Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report (2007) / Chapter Skim
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7 Risk Allocation: The Pentagon Renovation Project
Pages 31-36

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From page 31...
... First, low bid is inappropriate in situations with many unknowns, certainly the case at the Pentagon. Second, market forces inherent in the low bid process drive the contract price to the cost of performance or below it.
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From page 32...
... 7,748 windows 17.5 miles of corridors 25,000 personnel 1,000,000 calls each day Police force Metro station Fire Station 3 4 Health Facilities 2 Post Office 5 1 FIGURE 7.1 The Pentagon, a small city. FIGURE 7.2 The need for renovation.
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From page 33...
... Third, the low bid method deters some of the best firms from competing for the work, particularly given associated federal reporting requirements, cost accounting standards, and other issues. The new Pentagon renovation acquisition system is a two-phased, best value process.
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From page 34...
... Passive risk allocation is appropriate for vertical construction on a previously undeveloped or "green" site, smaller projects with manageable unknowns, standard commercial office spaces, and most federal construction projects. USING LEVERAGE WISELY It is not uncommon for owners to attempt to shift the project risk to the contractor up-front because of their leverage at this point in the process.
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From page 35...
... Complex projects require active risk allocation and careful planning. To help create trust and foster communication in the Pentagon renovation project, the owner's representatives, the general contractor, and the subcontractors, all work closely in the same space or trailer.
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From page 36...
... • Avoid frivolous changes by carefully screening subcontractors' proposed changes and their costs; establish a minimum change value; control indirect costs (general conditions, home office overhead, cumulative markups)
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Key Terms

  • risk allocation
  • low bid
  • active risk
  • renovation project
  • contract price

  • dispute minimization
  • award fee
  • bid process
  • critical path
  • contract clauses

  • passive risk
  • renovation acquisition
  • job site
  • contract type
  • value process

  • guaranteed maximum
  • using leverage
  • maximum price
  • leverage wisely
  • bilateral option

  • qualified firms
  • option exercise
  • pentagon hired
  • pentagon representatives
  • pentagon project

  • pentagon moved
  • resource pentagon
  • extremely sensitive
  • initial bids
  • federal reporting


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