Healthcare owners: GMP contracts on phased construction in a working hospital
A hospital renovation is rarely one job. It is a sequence of phases, each one inside a wing that has to keep operating while the adjacent wing is torn out. Patients are moved, departments are relocated twice, and the contractor works behind infection control barriers with negative air. The GMP covers all of it as one number, but the risk is not spread evenly across the phases.
A healthcare owner who reads the GMP as one contract will see a healthy contingency balance while the hardest phase is still ahead. This post is about reading the contract phase by phase, so the record matches the way the building is actually being built.
One GMP, several risk profiles
Consider a fictional $86 million renovation of a surgical tower in an operating hospital, set up in four phases over thirty months. Phase one is a shell space on a vacant floor, low risk and fast. Phase two takes over half the existing operating rooms while the other half keeps running. Phase three moves the central sterile department. Phase four is the remaining operating rooms. The contractor's contingency is $3.1 million for the whole contract.
If phase one and two go well and draw $600,000 of contingency, the owner sees 80 percent remaining at roughly 45 percent complete. That looks comfortable. It is not, because phases three and four carry most of the unforeseen conditions, most of the interim life safety measures, and the risk that a surgical schedule change forces a resequence. The contingency should be read against the risk remaining, not against the percent complete.
The costs that only exist in hospitals
Infection control risk assessment measures, interim life safety measures, temporary utility shutdowns coordinated with clinical staff, off hours work premiums and the cost of re-sequencing around a clinical need are normal in healthcare construction. Some are priced in the GMP. Some are carried as allowances. Some arrive as change orders when a surgeon's schedule changes and a phase has to be moved.
Each of those belongs in a specific place in the owner's record. A resequence driven by the hospital is an owner scope change and draws the owner's contingency. A shutdown that ran long because the contractor's isolation valve plan was wrong is a coordination issue and belongs to the contractor's contingency. An asbestos find behind a wall that the survey missed is unforeseen and the contract decides who pays. The cause is the thing that determines the fund, and the fund determines who carries the cost.
Allowances for clinical equipment
Medical equipment rough ins are usually carried as allowances because the equipment has not been selected at GMP. Each allowance has a decision date tied to the phase in which it is installed. A healthcare owner should keep an allowance register by phase, with the equipment planner named as the decision owner. A missed date in phase three lands as a premium in a phase that already carries the most risk.
What the hospital's finance committee reads
A hospital board's finance committee reads the capital budget against the anticipated final cost, and it reads the phase schedule against the clinical plan. What it rarely sees is the contingency position by phase, which is the line that predicts whether the last phase will be funded from contingency or from a request for more capital.
The monthly report should show, per phase: scope bought and scope still estimated, contingency drawn that can be tied to the phase, allowances reconciled and allowances open, and change orders by cause. The contract total stays as the frame. The phases are where the reading happens. When the committee asks whether the project is on budget, the honest answer names the phase that decides it.
Keeping the phased record
Most hospital facilities departments keep the contract in a spreadsheet, the phases in the schedule, and the contingency log in whatever the contractor provides. Reconciling the three for a finance committee packet takes the project manager most of a week each month. The phase view gets dropped when time runs out.
Costwitness keeps the owner's ledger for the GMP with every draw, change and allowance tagged to a phase as well as a cause, and shows contingency and anticipated final cost by phase and for the contract. The rules raise a flag when the contingency remaining looks thin against the phases still ahead. The facilities team and the equipment planner decide the causes and the dates. The software keeps the record they decided on.
Four steps before the next finance committee
- Tag every contingency draw and change order to date with the phase it belongs to, even if some are split across phases.
- List the interim life safety and infection control items in the GMP and note which are priced, which are allowances and which are assumptions.
- Build an allowance register by phase with the decision date and the equipment planner named on each line.
- Compute contingency remaining against the estimated risk of the phases still to come, not only against percent complete.
Questions on this
Should each phase have its own contingency?
Most contracts carry one contractor contingency for the whole GMP. The owner can still track draws by phase in the ledger and project how much of the remaining fund the later phases are likely to need. Some owners negotiate a phase by phase release of contingency. Check your contract for what yours allows.
Who pays when the hospital resequences a phase for clinical reasons?
A resequence requested by the hospital is usually an owner directed change and draws the owner's contingency or raises the GMP by change order. Under most AIA A133 based agreements the contractor is entitled to the cost and time of an owner directed change. The record should show the clinical reason and the date of the request.
How do unforeseen conditions get handled in an occupied building?
The contract sets the rule, and it is worth reading before the first wall is opened. A condition that differs materially from what the documents showed is usually compensable to the contractor. The owner's record should hold the survey or investigation that was done before GMP, because that is what the claim will be measured against.
In the product
Contingency ledger, Allowance register, Anticipated final cost. Free tool: Contingency Runway, Allowance Confidence Band.
Keep reading
Earlier: Multifamily developers: the GMP on a 200 unit building. Later: Public agencies: transparency requirements and the contingency log. All articles on by owner type.
See it on a project shaped like yours.
Thirty minutes on a call. A fictional project at your GMP size and your contract form, walked module by module.