Anticipated final cost: the number that matters more than the GMP

Ask a board member what the project costs and they will quote the GMP. Ask the contractor's project executive and they will quote a different number, one they update every month and rarely share in full. That second number is the anticipated final cost. It is the figure that determines whether there are shared savings, whether owner contingency survives, and whether the lender's last draw covers the last invoice.

The GMP does not change unless a change order is executed. Anticipated final cost changes every month, because every month the project learns something: a package is bought, an allowance is reconciled, a PCO is priced, a contingency draw is approved. Owners who report only the GMP are reporting a number that stopped being informative the day it was signed.

What anticipated final cost is made of

Anticipated final cost, often shortened to AFC and sometimes called estimate at completion, is the sum of what the project has cost so far and what it is expected to cost from here. The first half is firm: certified pay applications plus committed subcontracts. The second half is a forecast: remaining buyout at expected prices, allowances at reconciled or expected values, approved and likely change orders, and contingency that is expected to be drawn.

Each piece carries a different confidence. A bought package is a contract. An allowance at 50 percent design is a guess with a wide band. A PCO that has been priced but not classified could land on the owner or on the contractor. A good AFC shows these layers separately, so a reader can see how much of the number is known and how much is still open.

Why the GMP alone misleads

On a well run project the AFC sits below the GMP, and the gap is the projected savings pool. On a project in trouble the AFC sits above the GMP, and the gap is the owner's exposure, usually funded from owner contingency or from a change order the owner has not yet agreed to. In both cases the GMP is flat and the AFC is moving. Reporting the flat number hides the movement.

Consider a fictional $64 million county courthouse. The GMP was set at 90 percent construction documents. Eight months in, buyout is 85 percent complete and came in under the GMP lines. The AFC is $61.8 million. Then a design gap in the security electronics is priced at $1.4 million and classified as an owner cost. The GMP has not moved. The AFC has moved to $63.2 million and the projected savings pool has shrunk by more than half. A board reading only the GMP sees nothing.

Whose number it is

The contractor keeps an AFC. It is a management tool for them, and it is built from their job cost system, their buyout log, and their view of which changes the owner will accept. Owners are sometimes shown a version of it. They are rarely shown the assumptions underneath.

The owner's AFC should be built from the owner's own records: the frozen GMP baseline, the executed change order register, the contingency log, the buyout and allowance positions as the owner understands them, and the pay application history. Where the owner's AFC and the contractor's AFC differ, the difference is usually a classification or an assumption about an open item, and that difference is exactly the conversation the monthly meeting should be having.

Three numbers, not one

A single AFC figure invites false precision. Better practice is to carry a base case, a downside where open PCOs and allowances land badly, and an upside where they land well. The range is the honest number. A board can decide how much of the range it is willing to carry.

Keeping the owner's AFC

The AFC is only as good as the registers behind it. If the change order register is a month behind, the AFC is a month behind. If contingency draws are recorded only when they appear on a pay application, the AFC misses every draw that has been approved but not yet billed. The owner's AFC has to be rebuilt every month from current registers, and the previous month's figure has to be stored, not overwritten, so the trend is visible.

This is the job Costwitness was built for. It derives the anticipated final cost from the GMP baseline, the change order register, the contingency ledger, the buyout tracker and the allowance register, stores a snapshot each month, and shows the waterfall from GMP to AFC with each step labeled. The software does the arithmetic and flags any step that moved. The owner's team decides what the movement means.

In the product

Anticipated final cost, GMP baseline, Shared savings. Free tool: Change Order Exposure, Shared Savings Calculator.

Keep reading

Earlier: The anticipated final cost waterfall, step by step from the GMP. Later: How to read a G702 and G703 pay application as an owner. All articles on owner reporting.