Low-risk construction contracts: a way out. [Use by Morrison-Knudsen, Inc. , Boise, Idaho]

A new solution for reducing power-plant construction costs is being offered by Morrison--Knudsen, Inc., Boise, Idaho. The low-risk contract contains the key ingredient that owners and contractors want: the incentive for getting the job done at the lowest possible cost at a reasonable profit. The underlying concept behind the low-risk contract is that it creates an agreement which permits the owner and contractor to participate in a joint, semifixed cost/profit-sharing team effort. Both share the risks, the cost savings, the cost overruns, and the implications of design changes, delays, etc. The other key element of low-risk contracting is the sliding-fee incentive, which distinguishes it from the usual cost-reimbursable contract. While the details of each low-risk construction contact will vary, each contains an agreed-upon: (1) initial target-cost estimate; (2) adjusted target-cost estimate; (3) sliding-fee formula; and (4) final cost determination. The initial target-cost estimate is the total of the costs of specific lump-sum items, plus the cost of specific reimbursable items. (MCW)