Self-performed work inside a GMP: how the owner reads a package the contractor gave itself

Most trade packages in a GMP are bought from subcontractors, and the owner can read the buyout against the line: three bids, an award, a variance. Some packages are not bought at all. The construction manager performs the concrete, or the carpentry, or the demolition, with its own crews, and the line in the GMP for that work is a price the contractor set for itself.

There is nothing wrong with this. Self-performed work is often cheaper and better coordinated than subcontracted work, and most CM at risk agreements permit it. But it removes the one check the owner has on every other package, which is the market, and the owner has to replace that check with something else.

What the contract usually says

Under most agreements the contractor may self-perform with the owner's consent, and the work is either priced competitively against outside bids or priced at cost plus a stated markup. Which of those applies is in the agreement and should be read before the GMP is signed, because it decides how the line is read afterwards.

If the line was set competitively, the contractor bid its own forces against subcontractors and won, and the owner should have seen those bids. If the line is cost plus, the line is an estimate, the actual cost will be billed with backup, and the owner's question each month is whether the billed cost is reasonable and whether the markup is the one in the agreement.

The line in the ledger

A self-performed line goes into the baseline like any other, with its GMP value. On a fictional $27 million distribution center, the contractor might self-perform the $3.1 million of concrete and the $640,000 of rough carpentry. The buyout tracker will show no award against those lines, and that is correct; the field should say self-performed, with the pricing basis from the agreement beside it.

What replaces the award is the monthly billing. Each pay application will carry a percent complete on the self-performed lines, and if the work is cost plus, a cost report behind it. The owner reads the percent complete the same way as on any line, against what is visible on site. The cost report is read differently: it is the contractor's labor, equipment and material, and the check is whether those are billed at the rates and the markup the agreement allows.

Labor rates and the agreement

The agreement usually fixes the labor rates or the method for setting them, including the burden for insurance and benefits. A cost report that bills a superintendent at a rate the agreement reserves for general conditions, or that carries a burden percentage nobody agreed to, is the kind of thing that only an owner with the agreement open beside the report will catch. It is rarely large on any one application. Over eighteen months it can be.

The change order question

Self-performed work creates a particular problem with changes. When a subcontracted package needs a change, the subcontractor prices it, the contractor marks it up, and the owner sees two layers. When a self-performed package needs a change, the contractor prices it, marks it up, and the owner sees one party on both sides. The cause classification matters more here, not less, because there is no subcontractor whose exclusions can be checked.

The record for a change on a self-performed line should carry the same fields as any other: the event date, the cause, the amount, the notice reference. It should also carry the pricing basis, so that a change priced at cost plus can be checked against the same rates as the base work.

Savings that were never at risk

At closeout, a self-performed line that finishes under its GMP value contributes to the savings pool like any other. The owner is entitled to ask how. On a competitively priced line the answer is productivity or material prices, and it is a real saving. On a cost plus line with a generous estimate, the saving was built into the line on day one, and the savings split will share with the contractor money that was never at risk. The owner who recorded the pricing basis at baseline can raise that at closeout with the agreement in hand. The one who did not is arguing about a number the contractor set.

In the product

GMP baseline, Buyout tracker, Payment applications. Free tool: Pre-GMP Readiness Score.

Keep reading

Earlier: Nonprofit owners: a board that reads the report once a quarter. Later: Contingency at the midpoint: the numbers that should be true when the job is half built. All articles on gmp contracts.