I’ve worked on a few development deals but still need some clarity on the process of getting a General Maximum Price (GMP) contract done.
Say I am a developer. I have all the drawings etc and now I need a GC to build it. To agree on a maximum price, we need to get bids from subs for all the necessary work. So do the different potential GCs take my drawings and then go and get bids on everything, and then propose a maximum price? Do they need to get bids on 100% to sign the GMP?
From what I’ve seen, you’ll typically want to have some price clarity on major trades as early as SD so by the time you finished DD you have some semblance of approximate pricing. During CD, you’ll want to keep the GC close as they should start to price out the major and minor subs. You’ll have an initial GMP that solidified the GC general conditions. The final GMP once the GC has gone through the major and most minor trades. They may not have every minor trade, but that risk is baked into the GMP contract.
Are you asking for a breakdown of the general conditions? Why is usually 3x their fee? Anything to consider when assessing the GC general conditions?
You could literally sign a GMP with all allowances, you don't need any hard numbers from subcontractors or actual bids. When a GC signs a GMP, they're just guaranteeing the work, they haven't signed subcontracts, only guaranteeing the price based on the scope. That being said, the fewer numbers that you have from subcontractors, the riskier the project is both from a GC and developer standpoint. That's why getting bought out early after signing a GMP is super important because it locks in the pricing that you received in the GMP and will avoid uncomfortable conversations.
What does it mean to be bought out?
When you sign up a GC to a GMP, they're using proposals from subcontractors as backup for their pricing. They haven't actually executed any subcontracts yet, they typically have just vetted and ran through this so they're comfortable with price/scope. When the GC executes the contracts with their subcontractors, they're considered "bought out". Buyout from a GC perspective takes a lot of time and effort as designs might have changed from the time you signed a GMP to the time you actually need someone on site, and there are some scummy subs out there that will throw you a price and pull the rug from you once the deal is real, so there might be pricing variances/added costs due to design changes.
'cept when they decide never mind and delay your project 6 months and you gotta take em to arbitration haha
Yes you can take completed drawings out to bid with multiple GC's. But at that point it is plan and spec bid job, and there is little room for 'buyout' savings since the low bids the GC's get are what they are using for their overall "BID" to you which gets turned into the GMP contract. God I hate this conversation on GMP's at my company. The folks at the top do not understand it. GMP is a maximum price for THE SCOPE SHOWN and identified on the drawings. If they uncover 100 dead mummies or if the City adds gold plated toilets then no they do not include dealing with that problem.
GMP contracts are meant to be handled like this. You pick a GC based on perhaps Qualifications or through General Conditions and Fee Structure. Then you have the GC sit WITH YOU at the table as the project goes from early design to permit set. The GC adds value in helping you develop your budget. GMP's should really be design build. Also since its GMP, its completely open book. You are more aligned with the GC in bidding out to 3-4 sub trades per line item. You review those sub proposals together. You qualify the subs together. Sorry took my 2 minutes to rant.
This. God that must be a pain, your higher ups sound high. The biggest value is having them join during precon process to shape scope and budget (at least now given current fluctuations in hard costs).. so there’s no HUGE surprises when it’s time to go out for pricing and we don’t miss anything that we’ll then have to own once shovels are in ground.
TBH the majority of people I've seen absolutely do not have the skillset to do this and don't actually know what it takes to build a building. This is where most CM's/Owner's Reps come into play and their value is added during buyout. I've worked with some developers when I was on the GC side that were beyond clueless about actual construction and had no business being involved in the buyout process.
lol 100% this. Guranteed Maximum Price contracts don't guarantee a cap on the cost of your project. I'm not sure how these contracts were named as they are. I used to execute and manage AIA A133-2009 contracts long ago. It's basically a CMAR style project execution with the CM (GC) as a consultant to the project team, then the same GC becomes your prime contractor once CD's are ready. All open book as well. It worked great.
EDIT: FYI for the OP there are lots of contract resources/explanations online if you search for AIA Contract Documents. You can even find recordings of AIA webinars on youtube explaining how/when to use each contract. Here is a brief explainer of the A133: https://www.aiacontracts.org/contract-documents/6232027-owner-construct…
anything else I should look at for since its my first time using a GC? Thanks!
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