Carrying contingencies in the development proforma

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.

 

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.

 
Most Helpful

Quia maiores laborum natus alias facilis et iste et. Cumque impedit quisquam architecto totam saepe est similique. Dolores vel rerum perferendis molestiae numquam. Asperiores nisi esse commodi voluptate.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Betsy Massar's picture
Betsy Massar
99.0
5
kanon's picture
kanon
98.9
6
dosk17's picture
dosk17
98.9
7
GameTheory's picture
GameTheory
98.9
8
CompBanker's picture
CompBanker
98.9
9
DrApeman's picture
DrApeman
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”