Water Design-Build Council Blog

Guaranteed Maximum Price Determination on Progressive Design-Build Projects

Posted by Tommy Brennan, Business Development Manager, Ulliman Schutte on Fri, Jun 09, 2017 @ 04:30 PM

Piggy bank broken with money inside on white background.jpeg“OK, so what’s this going to cost?”

That’s the multi-million-dollar question we all want to know when starting out on any progressive design-build venture. It’s followed closely by “When will we know?” With the proper team in place, cost certainty can be achieved early in the progressive design-build process.

While it is never too early for an owner to formulate a project budget, it is important that everyone understand that the creation of a guaranteed maximum price, or GMP, is an evolutionary process. The overall project cost will continually be influenced by multiple factors as a design progresses.

Owners new to any form of collaborative delivery, including progressive design-build, may have to make a “leap of faith” and trust their design-build team to work with the owner’s team to formulate a GMP for the project that is consistent with the owner’s objectives and conforms to the project design.

Experienced design-builders will have extensive cost history and experience, thus allowing them to estimate project cost with more accuracy in the early stages of design and allow an owner to know where the GMP is likely to end up.

By no later than 30 percent design, the progressive design-build team should establish a preliminary construction budget. This budget should be as detailed as possible at this stage of design completion, such that any additions, deletions, or modifications to the design will result in cost adjustments but still represent the best value to the owner.

Budget changes at these early stages should directly benefit the owner, regardless of shared savings clauses that may have been agreed upon for post-GMP changes. As the design progresses and is refined, the detailed estimate should be updated frequently, with 60 percent design established as a milestone for a detailed overall construction cost review.

Throughout the design process, it is important that the progressive design-build team mutually agree upon project schedule, project risks, and project guarantees, among other factors that will directly influence the overall cost. The owner needs to understand exactly what they’re getting and have cost certainty that they can rely upon.

An advantage of progressive design-build delivery is the ability of an owner to authorize early work packages (in support of schedule constraints) while the design progresses towards GMP and final design. This potential acceleration of the project schedule can yield direct savings to the owner through reduced overheads of the design-build team.

There is a balance between determination of a guaranteed maximum price and the amount of contingency necessary for the team to confidently advance with construction activities. The more detailed the design, the less contingency that is required. The project team (owner and design-build firm) needs to weigh the engineering costs and schedule constraints of formulating the most detailed design against the potential need for contingency in the GMP.

Every project is unique and has its own challenges and limitations, but there is usually a point between 60 percent and 90 percent design where the owner can find the best value in terms of both cost and schedule, and the design-build team can accurately formulate a GMP. Historical cost data from similar projects, as well as current subcontractor and vendor quotes, will be critical in this process.

The longer the team takes to finalize design and generate a GMP, the lower the contingency should be, as the team will have vetted out more of the unknowns on the project. However, once the GMP has been finalized, the owner must fully understand the limitations in equipment and material selections, as well as subcontractor selection limitations.

Another key discussion point should include what level of services the owner will receive outside of the realm of construction. These items could include training and operator engagement, stakeholder engagement, BIM modeling, etc. There are costs associated with all of these items and they should be discussed early in the design process should they be considered for inclusion in the GMP.

The progressive design-build team’s goal should always be “best value” for the owner, consistent with the design and project scope objectives of the owner, prior to establishment of a GMP.

All parties need to be clear about the fact that this is a guaranteed maximum price based on the mutually approved scope of work being completed per the approved schedule. Progressive design-build is an excellent approach for an owner to achieve all project objectives at a reasonable price.

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Topics: progressive design-build