reducing owner risk through effective gmp negotiations...gmp set ‒ explains a/e’s statement of...

Reducing Owner Risk through Effective GMP Negotiations

Steve Zannoni, DirectorProject Management Consultants LLC

Reducing Owner, Architect, and Construction Manager Risk

through Effective GMP Negotiations

Steve Zannoni, DirectorProject Management Consultants LLC

Agenda

• What is a GMP?

• Why a GMP?

• What are the risks?

• What tools are available for reducing risks for

the Owner, Architect and Constructor?

3

What is a Guaranteed Maximum Price (GMP)?

What is a GMP?

• Constructor guarantees a not-to-exceed price

for the construction of a building project

• Show of hands: How many of you have participated in a project with a GMP?

‒ Liked it

‒ Hated it

‒ Unsure

5

Why a GMP?

• Reduce or eliminate bid risk

• Owner’s financing requirements

• Owner’s schedule

• Project complexity

6

What are the Risks?

• Scope disputes

• Budget and wants are not in alignment

• Timing

• Added work and costs to both architect and

construction manager

• Cumbersome process that reaps no benefits

7

GMP Process

• Should be a relatively easy process

• Many times it is difficult and time consuming

• Why?

– Team not communicating effectively

– Team has failed to honestly deal with

challenges early, especially budget issues

– One or more team members have

unreasonable expectations

8

Tools for reducing Risk

• Walking through the process

9

Construction Manageras Constructor

A/E OWNER

Trade Trade Trade

CM

Trade

•0


Advantages:

1. Pre-construction services

2. Guarantee of price (GMP)

•0

A/E OWNER

Trade Trade Trade

CM

Trade

Fee

General Conditions

Costs of the Work

Contingency

GMP

•0

Fee

General Conditions

Costs of the Work

ContingencyFinal Cost

Savings (Incentives)

•0

GMP

Fee

General Conditions

Costs of the Work

Contingency

Final Cost

Cost Overrun = CM Risk

•0

GMP

•

15


Advantages:



3. Accommodates partial fast track

4. Pre-qualification of bidders

Disadvantages:

1. GMP timing

•0

A/E OWNER

Trade Trade Trade

CM

Trade

RISK

TIME

POR SD DD CD 75%CD 100%CD

Start Construction

Risk of ScopeDisputes

Cost of Modifications

MarketRisk

0GMPTimingRisk Curve

17

GMP Timing

• What has been your experience with GMP timing?

– Earlier than 75% CD documents

– 100% CD documents

– After 100% bid has occurred

18


Advantages:





Disadvantages:

1. GMP timing

2. GMP contingency

•0

A/E OWNER

Trade Trade Trade

CM

Trade

GMP Contingency

• Owner contingency

• Construction contingency

• Design contingency

• What has been your experience with project contingencies?

– Successful

– Unsuccessful

– Doesn’t matter

20


Advantages:





Disadvantages:

1. GMP timing

2. GMP contingency

3. Scope disputes

•0

A/E OWNER

Trade Trade Trade

CM

Trade

The GMP Scope Dispute

• Owner seeks GMP at 75% complete

Construction Documents

• CM offers GMP with standard “Qualifications

and Assumptions”

• When final CDs are issued, CM legitimately

claims “new scope” and requests extras

• Owner and Architect claim scope is

“reasonably inferable” from GMP documents –

deny extras

• Disputes arise – potential cost overrun 22

The GMP Scope Dispute

• What has been your experience with GMP scope disputes?

• What has been your experience in resolving GMP scope disputes?

23

An Approach to Avoiding GMP Risks

• Facilitated GMP Approach

24

What is the Facilitated GMP Process?

• Well defined GMP Documents

• “Narrative Design Intent Prose Statements”

delivered with GMP Documents

• Initial Q&A based on all documentation

• Facilitated GMP session

• Sign-Off on revised GMP Documents, Design

Intent Statement and Q&A Statement

•0

25

• Bring together the

Owner, A/E, and

CM

• Facilitate

agreement on

intended structure

and content of the

set of documents

upon which GMP is

based. (“GMP Set”)

• Engage in a

normal cost review

and reconciliation

process up until

the date of

submission of the

GMP Set of

documents

• A/E delivers GMP

Set with the “Prose

Statement” that:

‒ Details all

incomplete

design elements

contained in the

GMP Set

‒ Explains A/E’s

statement of

intended scope

with respect to

incomplete

elements

‒ Identifies

“quality and

quantities” that

will appear in

the Construction

Documents

• CM submits

proposed GMP

including

qualifications and

assumptions based

on the GMP Set

Step 6Final GMP

• CM prepares the

final GMP

Amendment with

attachments for the

Owner’s approval

and signing

• Owner, A/E, CM

meet to reconcile

any

discrepancies or

disagreements

related to:

‒ GMP Set

‒ Allowances

‒ CM’s

qualifications

and

assumptions

• Structured and

facilitated

session

• Agreements

reached are

documented

• Qualifications

and assumptions

modified and

documented

Step 5A/E & CM

GMP

Reconciliation

Step 4CM

Proposed

GMP

Step 3A/E

Complete

GMP Set

Step 2Cost Review

&

Reconciliation

Step 1GMP “Set”

Agreement

Facilitated GMP Process

26


• Bring together the Owner, A/E, and CM at the start of the project to organize the GMP Process

27

Organizational Meeting of the Project team at the start of the project.

Need to have a serious discussion about:

• Scope and timing of GMP(s) and the

development of a realistic project schedule

• Level of detail for the GMP Basis Documents

• Coordination of estimate protocol

• Estimates by A/E and CM should include all

the GMP elements. SD & DD estimates

should be a “dress-rehearsal for the GMP”

28

Organizational Meeting (cont’d)

• Solicitation of bids before execution of the

GMP Amendment

– What is an acceptable strategy?

– Are there early subcontact packages

executed prior to the GMP Amendment?

• Purpose/function of different contingencies:

– CM Contingency

– Owner Contingency

– “Risk Holds”?

• Shared Expectations!


• Engage in a normal cost review and reconciliation process up until the date of submission of the GMP Set of documents

30

Cost Review and Reconciliation

• At each design phase, the estimate should be

a dress rehearsal of the GMP.

– Estimate formatted as GMP, including

contingencies, fees, general conditions, etc.

– Draft Assumptions and Clarifications

document is prepared

– Allowances are identified

– Alternates are identified


• A/E delivers GMP Set with the “Design Intent Statement” that:‒ Details all incomplete

design elements contained in the GMP Set

‒ Explains A/E’s statement of intended scope with respect to the incomplete elements

‒ Identifies “quality and quantities” that will appear in Construction Documents.

32


• CM submits proposed GMP including Qualifications and Assumptions based on the GMP Set

35

Proposed GMP

36

Assumptions and Clarifications

37


• Owner, A/E, CM meet to reconcile any discrepancies or disagreements related to:‒ GMP Set‒ Allowances‒ CM’s Qualifications

and Assumptions• Structured and

facilitated session • Agreements reached

are documented• Qualifications and

assumptions modified and documented

38

GMP Reconciliation Facilitated Meeting

• Owner, A/E and CM meet to

reconcile discrepancies and/or

disagreements related to the GMP

39

GMP Reconciliation of:

• GMP Set and Design Intent Statement

• Cost of work and any required value

engineering

• Allowances

• CM’s Assumptions and Clarifications

• Schedule

• Alternates

40

Group Discussion

• From the six-step process presented, what are your thoughts?

• What did you like?

• What didn’t you like?

• What would you change?

41

Closing Remarks

• Confirm and identify project’s GMP Budget

– Starts with accurate Budget

– Confirmed at start of project - be willing to

tell Owner the bad news

• Define scope/timing expectations for the

project’s GMP and have buy-in by all parties

• Identify realistic expectations

• A good GMP process only works if the team

members are informed and engaged!

42