Shared savings when the GMP was amended: which ceiling the split is measured against
The savings clause says the owner and the contractor share what is left under the GMP, in some proportion. It rarely says which GMP. On a job with forty change orders the GMP that was signed and the GMP that stands at closeout differ by a million dollars or more, and the pool is measured against one of them. Which one changes the split by a material amount, and the two parties will discover at closeout that they read the clause differently.
The ledger cannot decide the question. It can keep both figures, from the first change order onwards, so that when the question is asked the arithmetic is already done for either answer.
Two ceilings
The original GMP is the number in the amendment. The adjusted GMP is that number plus every executed change order that raised it and minus every one that lowered it. On a fictional $40 million transit maintenance facility, the original GMP might be $40 million and the adjusted GMP $41.3 million after eighteen months of owner changes, allowance reconciliations and unforeseen conditions.
The final cost of the work, say $40.6 million, is under the adjusted GMP by $700,000 and over the original by $600,000. Under a clause that measures against the adjusted GMP, there is a pool of $700,000 to share. Under one that measures against the original, there is nothing to share, and the change orders were simply the owner paying for changes.
What most contracts intend
The usual reading is the adjusted GMP, because a change order that raises the price for owner scope is a new bargain at a new price, and the contractor's incentive to save applies to the new price as much as to the old. The owner's check is that the change orders were priced correctly and caused correctly. A change order that raised the GMP for something the contractor should have carried has inflated the ceiling, and the savings measured against that ceiling are partly the owner's own money coming back with the contractor's share removed.
That is the reason to keep the cause on every change. At closeout, the owner can list the change orders that raised the GMP by cause, and can see how much of the adjusted ceiling came from owner decisions, how much from unforeseen conditions and how much from items that were argued at the time. The pool is measured against the total; the owner's judgment about whether the pool is fair is made against the list.
Allowance adjustments
Allowance reconciliations move the GMP too, up or down, and they are the cleanest case. An allowance that came in $80,000 under its value lowers the GMP by $80,000 and the saving is the owner's entirely, before any pool is calculated. A ledger that lets an allowance underrun fall into the pool has just shared the owner's money. The allowance register and the savings module need to agree on this before closeout, and the amendment usually says how.
The cap and the amended ceiling
Where the savings clause carries a cap, a maximum the contractor can receive, the cap is often expressed as a percentage of the GMP, and the same question arises: which one? A cap of 2 percent of the original GMP on the fictional project is $800,000; of the adjusted GMP it is $826,000. On this project the difference is small. On one where the GMP grew by a quarter, it is not, and the ledger should carry the cap computed both ways so that the number is ready when the reading of the clause is settled.
Keeping both from the start
None of this needs a decision during the job. It needs the register to carry the original GMP as a frozen figure, the adjusted GMP as a running one, and every change order with its effect on the second and its cause. The savings module then produces the pool against either ceiling, with the cap either way and the carve outs applied, and the closeout conversation starts from two numbers that both parties can trace rather than from one number each side computed its own way.
The owner who has that at closeout is negotiating the reading of a clause. The one who does not is negotiating the arithmetic as well, against a contractor whose cost report has already done it.
What to do this month
- Read the savings clause now and note whether it names the original GMP, the adjusted GMP, or neither.
- Keep the original GMP frozen and the adjusted GMP as a running figure in the ledger, with every change order's effect on it.
- Confirm from the amendment that allowance underruns return to the owner before the pool is calculated.
- Compute the cap both ways before closeout and put both figures in the closeout report.
Questions on this
Which GMP is the savings measured against?
Whatever the clause says, and many say nothing. The usual reading is the adjusted GMP, after executed change orders. The ledger should hold both so the pool can be computed either way.
Do allowance underruns go into the pool?
Usually not. An allowance reconciled under its value lowers the GMP and the difference is the owner's. Check the amendment; the allowance clause and the savings clause should be read together.
What if change orders inflated the ceiling?
The pool is still measured against the adjusted GMP under most clauses. The owner's remedy is the cause on each change: change orders that should have been contractor risks are the argument, not the arithmetic.
In the product
Shared savings, Change order register, Allowance register. Free tool: Change Order Exposure.
Keep reading
Earlier: Zero dollar change orders: time extensions and scope swaps that still need a cause. Later: The first monthly report: what to show when the project is one month old. All articles on buyout and shared savings.
See the baseline on a contract like yours.
Thirty minutes on a call. We read a fictional GMP amendment into the baseline and show what the basis flags reveal.