Unit prices and alternates inside a GMP: what the owner should record before they are used
Two things in a GMP amendment are prices that have not been used yet. Unit prices set what the owner will pay per unit for quantities that could not be fixed at signing: rock excavation per cubic yard, unsuitable soil removal per ton, additional piles per foot. Alternates set what the owner will pay, or be credited, if a defined piece of scope is added or removed later: the green roof, the second elevator, the upgraded lobby finish.
Both are agreements about the future made at the moment the owner had the most leverage. Both are used months later, when the leverage has gone and the person applying them may not have been at the signing. The record is what carries the agreement across that gap.
Unit prices and the quantity question
A unit price is only half a price. The other half is the quantity, and the quantity is measured on site by the contractor. On a fictional $24 million parking structure, the amendment might carry rock excavation at $185 per cubic yard against an assumed quantity of 900 cubic yards in the base scope. When the contractor reports 1,640 cubic yards, the change is 740 yards at $185, which is $136,900, and the owner's only checks are the measurement and the assumed quantity.
The assumed quantity should be in the ledger from day one, beside the unit price, because the change order will cite the total measured and the owner has to subtract what was already in the GMP. The measurement should be verified as it happens, by survey or by the owner's representative on site, because rock that has been hauled away cannot be measured afterwards. A unit price change order presented at month eight for excavation done in month three is a change order the owner cannot check.
What a unit price includes
The amendment should say whether the unit price includes markup, general conditions and fee, or whether those are added. It usually says, and the change order sometimes forgets. A unit price of $185 stated as inclusive, then applied with a 10 percent markup on top, is a 10 percent error in the owner's disfavor on every unit. The ledger entry for each unit price should carry the inclusion terms so that the change order can be checked against them in a minute.
Unit prices that run the other way
Some unit prices are for deductions: if the quantity comes in under the assumption, the owner is credited at the unit rate. The rate for a credit is sometimes lower than the rate for an addition, and the amendment says so. The owner who recorded both rates at signing gets the right credit. The one who recorded only the addition rate will be offered the credit at whatever rate the contractor proposes.
Alternates and their expiry
An alternate is a priced option. The amendment states the price and usually a date by which the owner must accept it; after that date the contractor may reprice. The ledger should carry each alternate with its price, its acceptance deadline and its scope definition, and the deadline should be on the same calendar as the notice deadlines, because an alternate accepted a week late is an alternate repriced.
When an alternate is accepted, it becomes a change order at the alternate's price, with a cause of owner scope and a reference to the alternate. When it is not accepted by the deadline, the ledger should record that it lapsed, so that a later proposal for the same scope at a higher price is seen for what it is.
The contingency question
Unit price changes are almost always owner risk: the quantity was unknown, the owner agreed to pay for what was found. They draw the owner's contingency by change order. Alternates are owner scope by definition. Neither should ever draw the contractor's contingency, and neither should appear in the savings pool as anything other than an adjustment to the GMP. The ledger that keeps the fund on every change makes that automatic. The one that does not will find, at closeout, that a unit price overrun was absorbed by contractor contingency and is now reducing a pool the owner was expecting to share.
What to do this month
- Enter every unit price with its assumed base quantity, its inclusion terms and, where different, its deduction rate.
- Verify unit price quantities as the work happens, by survey or on site, not from the change order months later.
- Enter every alternate with its price, its scope definition and its acceptance deadline, on the same calendar as notices.
- Record an accepted alternate as an owner scope change order with a reference, and a lapsed one as lapsed.
Questions on this
Do unit prices include markup?
The amendment says. Often they are stated as inclusive of markup and fee, and the change order should then carry no addition. Record the inclusion terms beside the rate at signing.
What happens if an alternate deadline passes?
The contractor may reprice, under most amendments. The ledger should record the alternate as lapsed, so that a later proposal for the same scope is seen against the price that was once agreed.
Which fund pays a unit price overrun?
The owner's, by change order. The quantity was unknown at signing and the owner agreed to pay for what was found. It should never draw contractor contingency or reduce the savings pool.
In the product
GMP baseline, Change order register, Contingency ledger. Free tool: Pre-GMP Readiness Score.
Keep reading
Earlier: Packages bought late in the job: what the last awards do to the savings pool. All articles on gmp contracts.
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.