By Steve Rizer
An ability to save time can prove to be one of the greatest benefits of a guaranteed maximum price (GMP) contract, Trauner Consulting Services Inc. Principal Scott Lowe told a group of professionals attending a webinar that WPL Publishing held Sept. 20. “Why is that? Well, because we’re not relying on a lump-sum price, scoping for the project does not have to be complete -- we don’t have to have a completed design -- which means we can begin construction before the design is complete. The sooner we can begin construction, the more time savings we potentially might be able to realize, so, very often, the greatest benefit that GMP contracting can offer to us is a savings in time….”
Lowe noted that GMP contracting is “quite popular” in the private sector, where the amount of time it takes for a project to get up to speed, online, generate revenue, generate rents, or make sales is “extremely important to the overall fiscal sanity of the project.” Therefore, even small savings in time “can have a huge impact on the financials of a project,” he said.
However, Lowe stressed that there are risks associated with GMP contracting, particularly if construction begins before a design is completed. “The first risk, and perhaps this might not be the most significant of the risks, … might be that because our scope of work isn’t completely nailed down -- we don’t have a completed design -- contractors and their subcontractors may be a little bit reluctant to give or set forth or agree to a more aggressive schedule. I think, however, that the more significant problem is that it’s now incumbent upon the design consultant to integrate the design process and progress with [that of] construction, and as a consequence, there’s a lot of pressure on the designer to be able to complete the design in addition to providing all of the usual site services that a design consultant might be asked to provide, like, for example, reviewing and approving shop-drawing submittals and those kinds of things. So, there’s oftentimes a question as to whether the design consultant has, literally, the resources to be able to accomplish that.
“When we look at time, one of the risks in GMP contracting associated with the contractor itself is that because, again, the design is incomplete, we run the risk that if we don’t get the design completed in time, we won’t have enough time to do proper coordination among the trades. Coordination is still required in a GMP contract, just like it is on any other project, but that coordination now is somewhat limited by the completion of the design. So, if we don’t have a design completed in time, we won’t be able to complete coordination in time, and that can lead to delays or the need to accelerate a project later on, so that is definitely a consideration on a GMP project.”
Another risk -- and perhaps reward -- that comes from GMP contracting is that because a GMP contractor is involved in the project much earlier, there is an ability, if time is lost via permitting or an inability to get project approval from a local municipality, to accelerate the project because the contractor is on board and because there is a cost-plus arrangement in the contract, Lowe said. “Acceleration can be a much more straightforward, much less contentious, and, frankly, much more doable and affordable process to involve ourselves with. And, of course, accelerations done early are also almost always cheaper than the accelerations we have to do at the bidder end of a project, mostly because we can pick and choose and use basically cost analysis to pick the best approach for accelerating the project. This additional flexibility can be quite helpful in terms of successful completion of the project.”
A recording of the webinar with slides can be purchased via the following link: http://constructionpronet.com/Products/GMP.aspx.