GMP, Contingency & Risk Allocation

The defining feature of Construction-Manager-at-Risk is the Guaranteed Maximum Price (GMP) — the moment the Construction Manager stops being a paid advisor and becomes a builder financially accountable for delivering the project at or below a capped price. This article explains how the GMP is built, what the cost components mean, how the two distinct contingencies work, and how risk is allocated between owner and CM in a healthcare context where design completeness, code compliance, and occupied-facility constraints make the GMP unusually hard to lock down.

The GMP is the at-risk threshold that converts the CM from advisor to builder

Under CMAR the owner holds two separate prime contracts: one with the architect/engineer (A/E) for design, and one with the Construction Manager. Early in design the CM operates in a preconstruction (precon) role — providing cost estimating, constructability review, scheduling, value analysis, and trade-market intelligence — typically compensated on a fixed fee or time-and-materials basis. The CM carries no construction risk during this phase.

The pivot point is the GMP. At an agreed level of design completeness, the CM proposes a Guaranteed Maximum Price: a not-to-exceed figure for the cost of the work plus the CM's fee. Once the owner accepts the GMP (usually via a GMP Amendment to the original CM agreement), the CM becomes "at risk":

Costs above the GMP are the CM's responsibility (absorbed out of fee or overhead), unless caused by an owner-directed change, a documented owner-controlled scope addition, or another contractually excused event.
Costs below the GMP revert wholly or partly to the owner via a savings (shared-savings) clause — the project is reconciled at completion and underruns are returned per the agreed split.

This is what distinguishes CMAR from a pure agency-CM arrangement (where the CM never takes price risk) and from design-build (where a single entity holds both design and construction risk). In CMAR the owner keeps direct control of design through the separate A/E contract while still securing a cost cap.

A GMP is the sum of defined, estimated, and reserved cost components

A GMP proposal is not a single lump-sum number — it is a structured build-up the owner can and should interrogate line by line. The standard components:

Component	What it covers	Risk character
Cost of the Work	Direct construction cost: subcontracts, self-performed trades, labor, material, equipment.	Estimated until subcontracts are bought out; the bulk of the GMP.
General Conditions (GCs)	Project-site overhead: CM's site staff, trailer, temporary utilities, cleanup, safety, hoisting, small tools.	Largely time-driven; grows if schedule extends.
General Requirements	Project-specific indirect items (permits, testing coordination, mockups, commissioning support).	Defined by spec sections; sometimes folded into GCs.
CM's Fee	The CM's profit and home-office overhead, usually a negotiated percentage or fixed amount.	Fixed at GMP; the CM's at-risk margin sits here.
CM (Construction) Contingency	The CM's reserve for cost growth within the agreed scope — see below.	Belongs to the GMP; controlled by the CM, reconcilable to the owner.
Insurance & Bonds	Builder's risk, general liability, payment & performance bonds, subcontractor default insurance (SDI).	Rate-driven; tied to contract value.
Allowances	Placeholder dollar figures for scope not yet designed or specified (e.g., specialty equipment, finishes).	Reconciled to actual when the scope is defined; over/under flows per contract.
Owner's Contingency	The owner's separate reserve, typically held outside the GMP — see below.	Owner-controlled; funds owner-driven changes and unknowns.

The clarity of these components — and especially what is excluded — is where GMP disputes begin. A GMP carries a list of qualifications, assumptions, clarifications, and exclusions that define the boundary of the cap. Anything the CM assumed but that turns out otherwise (a soil condition, a utility location, a long-lead equipment basis-of-design) becomes a change-order conversation rather than a cost the CM absorbs.

CM contingency and owner contingency are two different pools with different rules

The single most misunderstood part of a GMP is the two-contingency structure. They are not interchangeable, and conflating them is a common source of healthcare-project conflict.

CM (Construction) Contingency is inside the GMP. It is the CM's reserve to cover cost growth that falls within the originally agreed scope of work but could not be priced precisely at GMP — for example: subcontractor buyout coming in over estimate, minor coordination conflicts, incidental quantity growth, and the cost of fixing the CM's own errors or omissions in means and methods. Key rules:

It does not cover changes in scope — those are change orders funded by owner contingency.
It should not be used to cover the CM's profit erosion or to absorb design errors (those route to the A/E's professional liability, not to either contingency).
Drawdowns should be transparent and logged, with the owner entitled to see contingency status in monthly reporting. Many healthcare owners negotiate the right to review and approve CM-contingency use above a threshold.
Whatever remains unused at completion is part of the savings reconciliation and is shared per the savings clause — which is why the CM has an incentive to right-size, not pad, this reserve.

Owner's Contingency is outside the GMP (or sometimes a separately tracked line within the owner's total project budget). It funds:

Owner-directed scope changes and enhancements (added rooms, upgraded finishes, new equipment).