Calculating the Total Contract Cost on Early Subcontract Bidding for GC/CM Projects

In 2007, the Washington State Legislature amended the law addressing the alternative public works contracting procedure known as GC/CM (General Contractor/Construction Manager).

One of the more confusing provisions of the new law allows for a public agency to authorize the GC/CM to bid, award, and construct for certain subcontract bid packages prior to the plans and specifications being complete. This means that bidding, award, and construction may begin prior to the negotiation of the Maximum Allowable Construction Cost (MACC) between the GC/CM and public agency.

This new process raises many practical questions. The particular provision allowing this is found in RCW 39.10.370 (3).

Let's take a look at how this might play out in practice. The public agency authorizes the GC/CM to conduct early subcontract bidding for a demolition package since there is an interest in performing the demolition early in order to meet a schedule. The GC/CM bids the work on less than complete plans and specifications. A low bidder is identified. In order for work to begin, the GC/CM must award a subcontract to the low demolition subcontractor. In order for them to do that, they must have a contract with the public agency.

The public agency enters into a GC/CM contract with the contractor for only part of the work (the demolition). But what is the dollar amount of that GC/CM contract?

Part of it includes the subcontract bid price of the low demolition contractor (or an adjustment to that as may be negotiated between the public agency and GC/CM). But since the MACC, by definition, also includes Negotiated Support Services, these must be negotiated between the public agency and the GC/CM for just the work to be awarded under this "mini-MACC" GC/CM contract.

The Total Contract Cost of the GC/CM contract must also include an amount for the contractor's Percent Fee. Remember that the Percent Fee is a percentage that the GC/CM actually bids to the public agency during the GC/CM selection process and includes the contractor's overhead and profit. Part of the Total Contract Cost for this early GC/CM contract will include the percentage bid by the GC/CM for the Percent Fee multiplied by the "mini-MACC," the amount of the subcontract bid package being awarded now.

In addition, the Total Contract Cost must include a portion of the Specified General Conditions costs, again something that was bid by the GC/CM during the selection process as a lump sum. The public agency and GC/CM will need to negotiate a percentage of the Specified General Conditions costs that should be applied to the "mini-MACC."

Finally, because the state law requires a Risk Contingency amount to be part of the MACC, the "mini-MACC" for the project will also include the percentage previously designated by the public agency multiplied by the "mini-MACC" exclusive of Negotiated Support Service costs.

Thus, the MACC will consist of the following: a) amount of early subcontract bid package(s), b) amount for risk contingency, c) amount for Negotiated Support Services.

The Total Contract Cost will consist of the following: a) "mini-MACC," b) portion of Percent Fee, and c) portion of Specific General Conditions.

Once the complete MACC is negotiated (after the plans and specifications are at 90% completion), the revised MACC will be added to the GC/CM contract by change order.

Doing early subcontract bidding, award, and construction on a GC/CM project is a new feature of GC/CM contracting that requires careful attention to detail and an awareness and management of the risks associated with this practice.