GMP Contingency Structure

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In a GMP contract, contingency is not one number — it is a structured allocation across risk types with defined ownership. The contractual treatment of contingency (who controls it, who benefits from savings, when it can be drawn) is as important as the dollar amount. Misstructured contingency is a leading cause of contractor-owner disputes at closeout.

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The Three Contingency Layers

Layer	Common Name	Owner	Controls	Typical % of TIC
Design Development Contingency	DD Contingency	Contractor	Contractor draws as design resolves	5–10%
Execution / Risk Contingency	Construction Contingency	Contractor	Contractor draws for approved risk events	3–7%
Owner Contingency	Management Reserve	Owner	Owner releases at its discretion	5–15%

These three layers are often collapsed into a single “contingency” line in a GMP contract — which creates ambiguity. Best practice is to name and define each layer explicitly in the contract.

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Layer 1 — Design Development Contingency

Purpose: Covers cost growth as design matures from the GMP basis (typically Class 3 / FEED) to construction documents (Class 1 IFC).

At GMP signing, design is typically 30–60% complete. Cost growth from design development is not a change order — it is an expected outcome of the design process and must be absorbed by this layer.

Who controls: Contractor. The contractor draws from this allowance as scope clarifies during design. Owner typically has visibility (monthly report) but not approval rights on individual draws.

Industry norms by design completion at GMP:

Design % Complete at GMP	DD Contingency (% of construction cost)
15–30% (FEL-2 basis)	12–18%
30–50% (FEL-3 / early FEED basis)	8–12%
50–75% (FEED completion basis)	5–8%
75–90% (design development complete)	2–5%

Draw triggers: Any cost increase attributable to design development — added scope shown on later drawing revisions, specification clarifications, coordination issues resolved during design. These are not owner changes; they are design progression costs.

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Layer 2 — Execution / Risk Contingency

Purpose: Covers identified risk events from the risk register that materialize during construction — unforeseen site conditions, subcontractor performance issues, weather, market disruptions.

Who controls: Contractor, with owner notification requirement. Most GMP contracts require:

• Written documentation of the risk event
• PM + owner notification within a defined window (typically 7–14 days)
• Monthly contingency balance reporting

What it does NOT cover:

• Owner-directed changes (those are change orders)
• Design development cost growth (that is Layer 1)
• Escalation (always a separate line item — never drawn from contingency)

Industry norms:

• 3–5% of construction cost for well-defined, moderate-complexity projects
• 5–8% for first-of-kind, high-risk, or compressed schedule projects

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Layer 3 — Owner Contingency (Management Reserve)

Purpose: Owner-held reserve for scope changes, program evolution, and owner-directed additions that are outside the GMP scope. Kept off the contractor’s books entirely.

Who controls: Owner only. The contractor does not see this number and cannot draw from it. Owner releases as formal change orders.

Sizing guidance:

• 5–10% of GMP for projects with well-defined scope
• 10–20% for projects with evolving program (new product introduction, process not fully defined)
• CII FEP (Front End Planning) benchmarks: projects with FEP scores >65 average 4.8% cost growth; projects with FEP <25 average 19.6% cost growth — use FEP score to calibrate management reserve

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Contractual Treatment of Savings

When contingency is not fully consumed, who gets the savings is one of the most negotiated points in GMP contracting.

Contingency Layer	Typical Savings Split
DD Contingency (contractor-held)	100% to contractor (it’s in the GMP)
Execution Contingency (contractor-held)	Negotiated — commonly 50/50 or 100% to owner
Owner Contingency	100% to owner (never contractor’s)

Shared savings provision: Some GMP contracts include a shared savings clause on contractor-held contingency — if the project comes in under GMP, savings are split (e.g., 50% owner / 50% contractor). This aligns incentives but requires careful definition of what counts as “savings” vs. “scope reduction.”

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Draw-Down Process During Construction

1. Risk event occurs — contractor identifies a cost impact tied to a risk register item or construction contingency category
2. Notification — contractor notifies owner PM in writing within contract-specified window
3. Documentation — contractor documents: event description, cost basis (quotes, T&M logs), which contingency category applies
4. Draw — with owner acknowledgment (notification-only for contractor contingency; approval for shared savings tracking)
5. Monthly report — contingency log updated; owner receives remaining balance by layer

Contingency log columns:

Date	Event	Category	Amount Drawn	Balance Remaining

Warning signal: If execution contingency is drawn faster than % construction complete (e.g., 60% drawn at 30% complete), the project is overrunning. Investigate root cause immediately; do not wait for contingency depletion.

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GMP Contingency vs. Change Orders

Clarifying what comes from contingency vs. a change order is critical:

Event	Source
Design development cost growth	DD Contingency (contractor draws)
Unforeseen soil conditions	Execution Contingency (contractor draws, notifies owner)
Owner adds new scope	Change order (increases GMP)
Owner changes material specification upward	Change order (increases GMP)
Design error by A/E	Depends on contract — A/E professional liability or GMP contingency
Market material cost escalation	Escalation allowance (separate line — not contingency)
Subcontractor default	Execution Contingency or bonding claim

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Checklist: Contingency Language in the GMP Contract

• Three contingency layers named and sized explicitly
• Draw rights and approval thresholds defined per layer
• Notification timing requirements stated (7 days? 14 days?)
• Monthly contingency reporting format specified
• Savings split mechanism (shared savings provision or not) stated
• What triggers a change order vs. a contingency draw — explicitly defined
• Escalation as a separate named allowance (not lumped with contingency)
• Owner contingency kept off contractor’s books

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Related Pages

• Delivery Methods and Contracts — GMP contract structure and risk allocation
• Risk Contingency and Escalation — contingency calculation methods (flat %, EV, Monte Carlo)
• Pricing and Cost Assembly — where contingency sits in the GMP cost hierarchy

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