Owner Sophistication Needed for GC/CM Contracts

In negotiating the Maximum Allowable Construction Cost (MACC) on a GC/CM (General Contractor/Construction Manager public works construction contract, it is important that the owner's personnel have a good understanding of the process, particularly of how the different cost elements of a GC/CM project fit together.

GC/CM contracting is authorized for public agencies in the State of Washington under chapter 39.10 RCW.

The MACC is the negotiated amount for the contractor to perform the construction work. Included in the MACC (most of which is bid by the GC/CM through public bidding with individual subcontract bid packages based on trades) is what is referred to as Negotiated Support Services, items that are typically not bid, and therefore the owner and GC/CM negotiate these items that the GC/CM will perform. Also included in the MACC is what is termed the Risk Contingency account, a percentage of the MACC, minus the Negotiated Support Services.

The MACC, plus two other cost categories, constitute what is known as the Total Contract Cost. The other two cost categories are actually bid by the competing GC/CMs as part of the selection process. One is the Percent Fee, which is the GC/CM's overhead and profit. The other is a fixed amount for Specified General Conditions work which is to cover the contractor's costs for managing the project and covering general conditions type of work which is not bid.

In developing a GC/CM project, one of the most critical elements is the clearly define what types of work are covered in the MACC that is to be bid, what is in Negotiated Support Services, what is in the Percent Fee, and what is in the Specified General Conditions. Without clear definitions for these categories, an owner risks paying for items twice or impacting the selection process by permitting a contractor to bid low on the Percent Fee and Specified General Conditions and then trying to make up those costs as Negotiated Support Services costs.

Using the GC/CM process requires a sophisticated owner who understands how GC/CM works and who has clear definitions of what types of work is covered in what cost categories. Management of these costs during the project is also important.