Owner contingency inside or outside the GMP: what the choice changes
When the GMP amendment is drafted, someone decides where the owner's contingency lives. It can be a line inside the guaranteed maximum price, sitting next to the contractor's contingency. Or it can be held in the owner's development budget, above the GMP, and reach the contract only through change orders.
The decision looks like formatting. It is not. It changes who controls the money, whether fee is charged on it, how it shows on the pay application, and who argues about the remainder at closeout.
Inside the GMP
When owner contingency sits inside the GMP, the contract sum already includes it. The contractor can bill against it on the G703 as the owner authorizes draws, and the draws do not require a change order to the contract sum because the sum was never exceeded. Paperwork is lighter. The pay application shows one total.
The trade is control. Even with a clause saying the line is for owner directed changes only, the line is inside the contractor's schedule of values, and the contractor's monthly report will show it as part of the project contingency. Owners on this structure have to watch the classification of every draw closely, because the boundary between the two funds is a line in a spreadsheet rather than a contract amendment.
Fee is the second issue. Under many agreements the contractor's fee is a percentage of cost of the work, and a contingency inside the GMP may carry fee in the base price. Whether fee applies again when the contingency is drawn depends on the contract language. Check your contract, and ask the question before signing rather than at the first draw.
Outside the GMP
When owner contingency sits outside the GMP, the contract sum does not include it. Every use is a change order that raises the sum, signed by the owner, with the cause and the amount on the face of the document. The contractor cannot touch it and cannot report it as project contingency because from the contractor's side it does not exist.
Control is clear. The cost is friction. Each owner directed change needs a PCO, a price, a review, and an executed change order before the contractor can bill. On a project with many small owner changes, the change order log gets long and the approval cycle becomes its own schedule item.
The reporting is also cleaner for the board. The GMP is the contractor's number. The owner's contingency is the owner's number. The anticipated final cost is the sum of the two, plus pending items. Nobody has to explain which contingency is which.
A fictional comparison
Picture a fictional $50 million university science building with $2.5 million of owner contingency. Inside the GMP, the contract sum is $50 million and the owner sees one contingency line moving on the G703. Outside, the contract sum is $47.5 million and twelve change orders over two years bring it to $49.1 million, with $1.1 million unused and never in the contractor's hands. Same money. Very different records.
What happens at closeout
Unused owner contingency outside the GMP simply stays with the owner. There is nothing to reconcile. Unused owner contingency inside the GMP is a line in the contract sum that was never billed, and under some agreements it can get caught up in the shared savings calculation unless the clause carves it out.
That carve out is the detail owners miss. If the savings clause defines savings as GMP minus final cost of work, and owner contingency is in the GMP, the unused owner money can appear as savings to be split. Under most AIA A133 based agreements this is negotiable, and the place to negotiate it is before the amendment is signed.
Tracking either structure
Whichever placement the contract uses, the owner's ledger should keep owner contingency as its own fund with its own starting balance, draws, and remainder. Inside the GMP, that ledger is a check on the contractor's schedule of values. Outside, it is a check on the change order log.
Costwitness records where each contingency fund sits relative to the GMP and applies the matching rule: draws inside the price are tracked against the G703 line, draws outside are tied to executed change orders. The software keeps the two straight. What the contract should say is a question for the owner and its counsel.
What to do this month
- Find the owner contingency figure in your GMP amendment and note whether it is inside or outside the contract sum.
- Read the fee clause and write down whether fee is charged when owner contingency is drawn.
- Read the shared savings clause and confirm whether unused owner contingency is carved out of the pool.
- Set up the owner contingency fund in your own ledger with its starting balance and every draw to date.
Questions on this
Which placement is more common?
Both are common and the choice often follows the owner's type. Public owners tend to hold contingency outside the GMP so that every use is a signed, visible change order. Developers sometimes put it inside to reduce paperwork on fast moving jobs. Neither is wrong, but each needs the matching controls.
Can owner contingency be moved from inside to outside mid project?
It can be restructured by amendment, but it is rarely worth the disruption. The better approach is to keep a clear owner ledger under the existing structure and to make sure the closeout clauses are understood.
Does inside the GMP mean the contractor can draw owner contingency?
It should not, if the contract restricts the line to owner directed uses. In practice the line sits in the contractor's schedule of values, so the owner has to review each draw to confirm it was authorized. The contract sets the rule. The owner's ledger enforces it.
In the product
GMP baseline, Contingency ledger, Shared savings. Free tool: Shared Savings Calculator, Contingency Runway.
Keep reading
Earlier: Trailing rate versus average rate: two ways to project a contingency. Later: Contingency draws without backup: flag them, do not block them. All articles on contingency.
See the two funds on a project like yours.
Thirty minutes on a call. The twin drawdown chart on a fictional project at your GMP size, and the month the fund runs out.