GMP Contingency Versus Subcontractor Unit Prices
A design-build distribution center has a guaranteed maximum price of $12.8 million, including a $600,000 owner contingency. The contract is open-book, savings are shared 50/50, and contingency draws require written owner approval. The structural steel package was budgeted at $1.9 million, but the only responsive bid is $2.166 million, a 14% increase attributed to mill surcharges since the design-development estimate. Separately, the civil subcontract carries a unit price of $185 per cubic yard for imported fill with an estimated quantity of 12,000 cubic yards. Field measurement shows 15,500 cubic yards because of undocumented fill under a parking area. The subcontractor now claims $240 per cubic yard for all 15,500 cubic yards, citing haul distance and a tighter site. The owner's representative says both overruns are the GC's risk because the GMP is fixed.
1. Allocate the steel and fill variances between owner and GC. Show the arithmetic and state which contract provisions control.
Read the worked answer
Steel: $2,166,000 - $1,900,000 = $266,000 over budget. This is a buyout variance after the design-development estimate. If the GMP was set at design development and the contingency is defined to cover buyout variance, the $266,000 is a legitimate contingency draw, subject to written owner approval. If the contract makes the GMP a firm cap with no buyout adjustment, the GC bears it. The contract language controls, not the label 'contingency.'
Fill: Quantity variance = 15,500 - 12,000 = 3,500 CY. At the contract unit price, 3,500 × $185 = $647,500. The rate increase is ($240 - $185) × 15,500 = $852,500. Total claim = $1,500,000, which matches $3,720,000 actual minus $2,220,000 budget.
The $647,500 quantity overrun is payable to the subcontractor at the contract unit rate. It is recoverable from the owner only if the undocumented fill is a differing site condition and notice was given. The $852,500 rate increase is the GC's subcontract risk unless the unit price is expressly adjustable or the condition changed the cost of the unit rate itself. The owner's 'fixed GMP' statement does not override the contract's contingency and differing-site provisions.
2. What should the project manager do before authorizing any payment to the civil subcontractor?
Read the worked answer
Do not authorize the $1,500,000 claim. First, verify the quantity independently by survey and cross-section, not by the subcontractor's ticket total. Second, read the unit-price clause: does it state a fixed rate for actual quantity, or a rate subject to adjustment? Third, check whether the subcontractor gave the contract notice for a changed condition and whether the owner received timely notice.
Then separate the claim into quantity and rate. Pay the contract unit rate for measured quantity if the work is verified. Reject the $55 per cubic yard uplift unless the subcontractor proves the changed condition caused that specific cost and the contract allows it. Request haul tickets, plant records, and a cost breakdown. If the owner may bear the quantity overrun, present it as a separate change with the survey and the geotechnical comparison. Preserve the GC's position in writing before paying anything.
3. The owner offers to release $300,000 from contingency if the GC waives all further fill claims. Advise the superintendent.
Read the worked answer
A $300,000 release against a potential $647,500 quantity claim is not a good trade unless the GC's entitlement is weak. I would test entitlement first: was the fill shown or reasonably inferable from the geotechnical report, was notice timely, and does the contract make the estimated quantity a representation or merely an estimate? If the estimate was expressly not a representation, the risk may be the GC's, and $300,000 may be reasonable. If the undocumented fill is a true differing site condition and notice was preserved, the release is premature.
I would counter with a reservation of rights: accept the $300,000 as a partial payment, not a waiver, or condition any waiver on the owner releasing the steel contingency and granting the time impact. Before signing, calculate the net position including the $852,500 rate claim, which is likely the GC's risk. Do not let a small contingency release extinguish the larger documented quantity claim without a written analysis.