When contracting for design-build, ConsensusDocs offers options. The ConsensusDocs 410 Design-Build Agreement [Cost of the Work with a Guaranteed Maximum Price (GMP)] is the most popular within ConsensusDocs. Contractually, the GMP is set by the ConsensusDocs 410.1 GMP Amendment. When should you set the GMP for a design-build project? Well, that depends. Parties should set the GMP as soon as there is enough design development as well as price and schedule certainty that the parties feel comfortable locking those terms into an agreement.
When setting a GMP, users should note that the GMP, as spelled out by article 7, includes the cost of the work, compensation for Design Phase services, and the Design-Builder’s fee. Change orders can increase the GMP. Costs from previous contracts, which can include design services under the scope of the ConsensusDocs 400 [Owner and Design-Builder Preliminary Agreement] to get the project to schematic design, should be added inclusively in setting the GMP. Absent change orders, the GMP creates a ceiling for a construction project’s price. Consequently, the risk for cost overruns shifts to the design-builder, rather than the owner. This is especially important through this current period of price escalation volatility and supply chain disruptions, and Design Builders should consider a price escalation clause.
A shared saving clause should be considered before finalizing the GMP if it is not already in agreement. The 410 includes language in the deal in section 7.5 that states:
If at Final Completion, Cost of the Work plus Design-Builder’s Fee is less than the GMP, the difference shall be shared as follows: The savings, if any, shall accrue percent (%) to Owner and percent (%) to Design-Builder. The shared savings shall be calculated and paid as part of final payment. . . .
The 410.1 GMP amendment also sets the date of substantial complete and final completion — two critical milestones.
Same Goes for CM At-Risk Agreement
The same principles of when to set a GMP, as outlined above, also apply to the ConsensusDocs 500.1 GMP Amendment [GMP & Completion Dates] that is used in conjunction with the ConsensusDocs 500 CM At-Risk Agreement.
Notably, the ConsensusDocs 500 Agreement does not include shared savings language in the agreement but provides two different, more sophisticated options that are included in the Guidebook comments to the ConsensusDocs 500.1. The shared saving options intend to give more incentives for projects that come significantly under budget. At the same time, owners may cut off shared savings at a certain point to avoid a windfall that could be generated from overly cautious or generous cost estimating.
ConsensusDocs Guidebook is here.
ConsensusDocs Price Escalation Resource Center is here.