The GMP amendment's exhibits: which pages the owner's ledger is built from

The amendment that sets the guaranteed maximum price is usually three or four pages long. The number, the date, the fee, the signatures. Everything the owner will need for the next two years sits behind it, in exhibits that run to forty or sixty pages and that most owners read once, on the day of signing, and then file.

Those exhibits are the owner's ledger in its raw form. Each one feeds a specific register, and the work of setting up the ledger is mostly the work of copying the right figures out of the right exhibit before the first pay application arrives and starts moving them.

The GMP breakdown

The first exhibit is the breakdown of the price itself: cost of the work by division or by trade package, general conditions, the contractor's contingency, the allowances, the fee, and any insurance or bond line that sits outside the fee. On a fictional $52 million office fit out the breakdown might show $41.6 million of trade work, $3.9 million of general conditions, $1.56 million of contractor contingency, four allowances totaling $1.2 million, and the fee on top.

Every one of those figures becomes the day one value of something. The trade lines become the GMP lines that buyout is measured against. The contingency figure is the opening balance of the contractor's fund. The allowance figures are the opening balances of the allowance register. The general conditions figure is what the monthly general conditions billing is compared with. If the breakdown is copied wrongly on day one, every later comparison is wrong by the same amount, and nobody will find it until closeout.

The schedule of values

The second exhibit is the schedule of values, or a commitment to produce one before the first pay application. It is the same money as the breakdown, cut differently: by billing line rather than by trade package, so that the pay application can show percent complete against each line. It should add up to the same total. It does not always.

The owner should reconcile the two before the first application, line by line where the lines match and in total where they do not. A schedule of values that carries $180,000 more in early trades than the breakdown does is not a clerical matter; it is a front loading of the billing, and the time to raise it is before the first certificate, not after the third.

The assumptions and clarifications

The third exhibit is the list of assumptions, clarifications and exclusions on which the price rests. It is the exhibit owners read least and pay for most. Each line is a statement of what the contractor has and has not priced: that the site is clean fill to a stated depth, that the drawings are the set dated a certain day, that the owner will provide power to the site boundary, that a particular finish is an allowance rather than a priced scope.

Each assumption is a future change order waiting for its trigger. The owner's register of causes starts here, because when the change order arrives, the question of whether it is an owner scope change, a design gap or an unforeseen condition is answered partly by what this exhibit said the contractor had assumed. Copying the list into the ledger with a reference number on each line means the argument at month fourteen can cite the line at month zero.

The drawing log

Behind the assumptions sits the list of drawings and specifications the price is based on, with sheet numbers and dates. It matters for one reason: a change order that cites a drawing revision is claiming that the revision came after the priced set. The owner who has the priced set's dates in the ledger can check that claim in a minute. The owner who does not has to ask the contractor, who is the other party to the claim.

The contingency and allowance terms

Somewhere in the amendment or its exhibits are the terms that govern the two funds: who may draw contractor contingency and for what, whether the owner approves each draw or is only notified, whether unused contingency returns to the owner or goes into the savings split, and how allowances are reconciled and when. The same clause or a nearby one sets the savings split, the cap and any carve outs.

These are not numbers, so they do not get copied into a spreadsheet, and so they get forgotten. They belong in the ledger as the rules the ledger applies: the split percentage on the savings module, the approval setting on the contingency fund, the reconciliation date on each allowance. Set once, from the exhibit, on the day the ledger is built.

What is not in the exhibits

Two things the owner needs are usually missing. The first is the notice period for changes, which is in the general conditions of the base agreement rather than in the amendment, and which has to be found and entered as a number of days. The second is the owner's own contingency, which is not part of the GMP at all and which the contractor's exhibits never mention. It is the owner's money, held outside the contract, and it needs its own opening balance in the ledger from the owner's budget rather than from anything the contractor signed.

In the product

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

Keep reading

Earlier: What a GMP contract is, read from the owner's side. Later: Contingency transfers between the two funds: when the contractor asks to move money. All articles on gmp contracts.