Closeout reconciliation: checking the savings figure before you sign off

The final pay application arrives with a reconciliation attached. It shows the final GMP, the final cost of the work, the fee, and a savings figure with the split applied. The contractor's share is included in the amount due. The owner is asked to approve it, release retainage, and close the contract. This is the last moment at which the owner can check the number, and the first moment at which most owners try.

Start from the GMP, not the cost

The contractor's reconciliation usually starts from the cost side: here is what we spent, here is the GMP, here is the difference. The owner's check should start from the other end. Take the original GMP from the signed amendment. Add every executed change order, by number, from the owner's change order register. The result is the final GMP. If it does not match the contractor's final GMP, stop and find the difference before going further. A missing or duplicated change order is the most common error at this step.

Then list the change orders that were never executed. Pending PCOs, disputed items, changes the owner rejected. None of them belong in the final GMP. If the contractor's reconciliation includes any, that is a conversation to have before the figure is accepted.

Check the cost side in four parts

Buyout first. Every package should have an executed subcontract value and a final cost including subcontract change orders. Compare the final cost to the owner's buyout log. Where the final cost exceeds the award, the difference should be explained by subcontract changes that correspond to either an owner change order or a contingency draw. Where it does not, ask.

Contingency second. The contractor's contingency should be fully accounted for: opening balance from the GMP, every draw with its backup, closing balance. The closing balance is either savings, or the contractor's, or split, depending on the contract. The owner's contingency ledger should match the contractor's log entry for entry. Any draw the owner did not see during the project deserves a question now.

Allowances third. Every allowance should be reconciled, with a change order or a documented absorption for each variance. An allowance that was never reconciled is either unspent, in which case the GMP should be reduced, or spent without reconciliation, in which case the cost is in the job and the GMP was never adjusted. Both need resolving before the savings figure is final.

General conditions and fee last. General conditions should be compared to the GMP value and to any extensions granted by change order. Fee should be recomputed from the final cost if it is a percentage, or confirmed as the fixed amount if it is fixed. Fee on change orders should match the contract rate.

Apply the clause, not the summary

With the final GMP and final cost agreed, compute the gross gap. Then apply the carve outs: unused owner contingency, any allowance reductions that the contract returns to the owner, savings on owner deductive changes, and anything else the clause excludes. Then apply the split, and then the cap. The contractor's reconciliation may have applied these in a different order or skipped one. The order matters and the clause sets it.

A fictional $41 million library closes with a gross gap of $1.1 million. The contract carves out $200,000 of allowance reductions, which go to the owner directly. The remaining $900,000 is split 70 to 30, giving the contractor $270,000. A cap of half a percent of the GMP, or $205,000, applies, so the contractor receives $205,000 and the owner keeps $895,000 of the $1.1 million. The contractor's reconciliation had applied the split to the gross gap and omitted the cap, showing $330,000. The difference is $125,000, found by reading the clause.

Why this is easy or impossible

Every step above depends on a record the owner kept during the project. The frozen GMP, the change order register, the buyout log, the contingency ledger, the allowance register, the savings terms. An owner who has these can do the reconciliation in an afternoon. An owner who has only the pay applications and the contractor's reports can do it only by accepting the contractor's figures at each step, which is not a check.

Costwitness produces the closeout reconciliation from the ledger it has kept since the GMP was frozen, in the order above, with the savings terms applied as entered. The software builds the figure. Agreeing it with the contractor, and resolving the items that do not tie, is the owner's final task on the contract.

In the product

Shared savings, GMP baseline, Change order register. Free tool: Shared Savings Calculator, Change Order Exposure.

Keep reading

Earlier: How to read a G702 and G703 pay application as an owner. Later: A buyout log for owners: the five fields that matter. All articles on buyout and shared savings.