Had a couple of basic question relating to how to work the contingency line items in a typical development budget/proforma.
Assuming both a hard cost and soft cost contingency, if a GMP contract is utilized, once the contract is executed, shouldn't the hard cost contingency effectively go away? i.e. the hard costs are being guaranteed by the GC and there should be no reason for the investment partnership to bear any hard cost overages from the time the GMP gets signed? I understanding carrying the contingency upfront prior to the GMP being completed, but once it is, shouldn't that hard cost contingency go away?
One the GMP is completed, my understanding is those contracts need to be bought out and once that is completed it will be known whether the GC will either be at/below/above the GMP number?
Easy answer - change orders. You can count on them. You absolutely want to carry a contingency above the GMP to account for design changes or any other tweaks that change project along the way. Those are not covered by the GMP since they change the original scope that the GC agreed to. The actual developers will give you a much better answer but that's the gist of it.
For additional clarity for the OP, Owner directed/requested COs.
Yep. And you never have enough specificity in a GC contract to avoid them. Literally inevitable, like mushrooms after rain.
I don't care how good your CDs look, or your specs, there will always be issues that crop up, areas of uncertainty, or places where you just missed that your GC was speccing a Whirlpool fridge when you wanted a Miele.
Moreover, in a more pedantic sense, a traditional lender will never you get away with it.
Godspeed brother
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