In light of price escalation, supply chain challenges, and inflation, more industry practitioners are considering and using cost-of-the-work agreements that may or may not include a guaranteed maximum price (GMP). ConsensusDocs publishes several cost-of-the-work agreements and recently released a new standard contract document to support a cost-of-the-work agreement with a GMP as well as a directed change order standard form.
Setting the GMP
When a GMP is used, it is set by amendment. The ConsensusDocs 230 Standard Agreement Between an Owner and Constructor with General Conditions (Cost of the Work with a Fee and a GMP) assumes a GMP. For the ConsensusDocs 230, to set the GMP amount and completion dates, contracting parties may use ConsensusDocs’ just published ConsensusDocs 230.1 amendment to the ConsensusDocs 230. Before this publication, users would have to make their own amendment or modify other ConsensusDocs documents.
Parties should consider this new document when they possess sufficient certainty for a project to set the GMP as well as the date of substantial completion and the date of final completion. Sometimes, when there is more price uncertainty, parties wait longer in the project completion to set the GMP. When the contract amount is set early, one consideration is for the parties to include more incentives to compensate for the extra risk. Shared savings are often used in these situations. The ConsensusDocs Guidebook includes a couple of different options for language that parties might insert for shared savings, such as a price escalation clause, allowances and contingency amounts; refer to the section about Amendment 1 to the ConsensusDocs 500.
Another just-published contract document is the revised ConsensusDocs 203. This contract document can be used as a unilateral order issued by the Owner to the Constructor to perform a change to the work that has not been agreed upon. If agreed upon, then the ConsensusDocs 202 change order form should be used. Notably, the ConsensusDocs 203 contract document can now also be used when an Owner provides field instructions or other information that does not necessarily impact price or time. This document was revised because the permissible uses of an interim directive have expanded to include field instructions under general conditions and term in ConsensusDocs. For example, when a Constructor stops work for unexpectedly encountering hazardous conditions, an Owner can then instruct the Constructor through an interim directive to resume its services once the condition has been safely remediated or controlled. And such instructions may or may not change the contract price or contract time. These revisions make the expanded efficacy of interim directives clearer. (The American Institute of America (AIA) contract documents use the terminology of construction change directives for what ConsensusDocs terms as an interim directive.)
AGC Article: When is the Price Right? Setting the GMP for Design-Build
Questions about the content of these new documents may be directed to Brian Perlberg, ConsensusDocs’ Executive Director & Senior Counsel at firstname.lastname@example.org.