Your first GMP contract: a reading order for first time owners

A nonprofit building its first headquarters, a church building a sanctuary, a small manufacturer building a plant, a private school adding a wing. Each has an executive director or a board chair who has never signed a construction contract and is now holding a GMP amendment with fourteen exhibits. The contractor has done this a hundred times. The owner is doing it once.

The document is readable. It just needs to be read in the right order, which is not the order it is printed in. This post gives that order, what to write down at each step, and what to have in place before the first pay application arrives.

Read the money first: the GMP breakdown

Skip the front of the amendment and find the exhibit with the GMP breakdown, usually a schedule of values or a cost summary. It lists the cost of the work by trade, the general conditions, the contractor's fee, the contractor's contingency, and the allowances. Write down five numbers: the total, the contingency, the sum of the allowances, the fee and its basis, and the general conditions.

Then look at each trade line and ask what basis it has. Is it a signed subcontract, a bid, or the contractor's estimate? The amendment may not say. Ask. On a fictional $14 million private school wing, if 35 percent of the cost of work is covered by subcontracts at signing, then 65 percent is still an estimate protected by the contingency. That is the first thing a first time owner should understand about the number they are about to sign.

Read the list of things the contractor has not agreed to

Somewhere in the exhibits is a list titled qualifications, clarifications, assumptions or exclusions. It is the most important page in the amendment and the one a first time owner is least likely to read. Every item on it is something the contractor has priced in a particular way, or has not priced at all. Rock excavation by the cubic yard. Permit fees by the owner. Furniture excluded. Utility connection fees by others.

Each item is a place where the GMP can move. Go through them one by one and decide whether the owner is carrying that risk knowingly. Some belong on the list. Some should be negotiated into the price before signing. Under most AIA A133 based agreements the qualifications list is part of the contract and governs when there is a conflict, so an item you did not read is still an item you agreed to.

Allowances are on this list too

An allowance is a promise to find out later. The amendment carries a dollar figure for something nobody has priced, and the contract says what happens when the real cost is known. Write down every allowance, what it covers, and the date the contractor needs the owner's decision. That date is usually not in the amendment. Ask for it.

Read the rules: contingency, changes and savings

Now go back to the body of the agreement and find three clauses. First, the contingency clause: what the contractor may use it for, whether the owner has to approve draws, and what happens to the unused balance at the end. Second, the change order clause: what markup applies, what notice the contractor must give and how soon, and how a change is priced. Third, the shared savings clause: how the difference between the GMP and the final cost is split.

Write down the answer to each in one sentence. If the answer is not clear, ask your attorney before signing rather than after the first draw. These three clauses decide most of what the owner will argue about over the next two years, and a first time owner who can recite them is in a better position than most experienced ones.

Set up the record before the first pay application

Everything written down in the steps above is the owner's baseline. The GMP breakdown, the basis of each line, the qualifications, the allowances with their decision dates, the contingency balance and the rules. Freeze it. Date it. Never edit it. Every month from now on, the owner will compare the current position to it.

Most first time owners keep that baseline in a spreadsheet and update it from the G703 each month. It works until it does not. Costwitness keeps the baseline frozen and versioned, holds the contingency and allowance ledgers against it, and raises a flag when something moves outside the contract's rules. The owner still reads the pay application and decides what each change means. The record is there when the board asks.

In the product

GMP baseline, Allowance register, Contingency ledger. Free tool: Pre-GMP Readiness Score, Allowance Confidence Band.

Keep reading

Earlier: Community college districts: program management across campuses. Later: What a lender or investor should be able to read, and what they should not. All articles on by owner type.