The GC Bid

A contractor’s bid reflects a proposed scope, the subcontractor market, schedule and the contractor’s view of risk at a particular time. It is evidence about what that team is prepared to build for that price, not a universal measure of construction cost.

Where the contractor’s margin sits

$20.00M trade estimate · $1.20M general conditions · same signed price in all three contracts

Illustrative assumptions only, not market data. One project: $20.00M of trade work (the estimate), general conditions at 6% of trades ($1.20M), contingency as a percentage of trades plus general conditions (default 3%) and a fee, overhead and profit percentage on the same base (default 5%), so all three contracts start from the same signed price, estimate or cap. Lump sum: the contractor is paid that price whatever the work costs; contingency and fee are inside it, unitemized, and whatever is unspent is the contractor’s. Cost-plus-fee: the owner pays the actual cost of work (trades plus general conditions) plus the fee, which is fixed in dollars at signing; the contingency is the owner’s reserve, not contractor margin. GMP: the owner pays actual cost plus the fee up to the cap (the signed price); savings below the cap are split, with the contractor taking the selected share (default 50%); above the cap the contractor pays. At a 100% share a GMP behaves like a lump sum. The outcome moves trade cost only. Scope is unchanged, general conditions do not move, and there are no change orders, bonds, insurance, financing or time value. The bar axis starts at $18.5M.

If bids exceed the budget, redesign may be one response. First it helps to understand the gap: the scope may have grown, the estimate may have been optimistic, the market may have shifted, or a particular trade may be driving the price. Different causes call for different changes.

Comparing bids and assumptions can make that diagnosis more useful. Alternates, exclusions, contingencies and schedule assumptions matter alongside the total. A bid is a market signal, but only when its scope and terms are understood. A useful comparison normalizes scope before treating the lowest number as the best answer.

The study prices one project three ways: lump sum (a stipulated sum), cost-plus-fee and a guaranteed maximum price (GMP). The trades are assumed at $20.00M and general conditions at $1.20M. A contingency and a fee, overhead and profit percentage sit on top, so all three contracts start from the same signed price. Every percentage is an illustrative assumption, not market data. Drag the dashed cost line, the fee, the contingency or the savings split to see who keeps or pays the difference.

On budget, with a 3% contingency and a 5% fee, the owner pays $22.90M as a lump sum, $22.26M cost-plus and $22.58M under a GMP. The contractor’s margin is $1.70M, $1.06M and $1.38M. In the lump sum the margin is the contingency and the fee, buried in unit prices and allowances. In cost-plus it is the fee alone, shown openly.

A 5% underrun makes the lump sum the most profitable contract for the contractor. The owner still pays $22.90M, and the contractor’s margin rises to $2.70M. Cost-plus passes the saving to the owner, who pays $21.26M while the margin stays at $1.06M. A GMP splits it: the owner pays $22.08M and the contractor’s margin is $1.88M.

A 10% overrun reverses the picture. The contingency and the whole fee are used up, and under a lump sum the contractor’s margin falls to −$0.30M, a loss, while the owner still pays $22.90M. Under cost-plus the owner pays the whole overrun, $24.26M, and the margin stays at $1.06M. A GMP behaves like the lump sum here: the cap holds the owner to $22.90M and the contractor’s margin is −$0.30M.

A big contingency, 8% instead of 3%, raises the signed price to $23.96M with the work unchanged. Under a lump sum the unspent $1.70M becomes profit, so the margin is $2.76M and none of it appears as a line. Under cost-plus the contingency stays the owner’s reserve: the owner pays $22.26M and the margin is $1.06M. Under a GMP the contingency is visible and shared, so the owner pays $23.11M and the margin is $1.91M.

A high fee, 9% instead of 5%, is easiest to read under cost-plus. The fee is $1.91M, shown plainly: the owner pays $23.11M and the margin is $1.91M. The lump sum owner pays $23.74M and cannot see the fee, and the contractor’s margin is $2.54M. Under a GMP the owner pays $23.43M and the margin is $2.23M.

A shared-savings split decides who keeps a saving under a GMP. With an 8% underrun and the contractor taking 25% of the savings, $2.24M is saved below the cap. The contractor keeps $0.56M of it and the owner $1.68M, so the owner pays $21.22M and the margin is $1.62M. A lump sum gives the contractor all of the saving, a $3.30M margin on a $22.90M price. Cost-plus gives it all to the owner: $20.66M and a margin of $1.06M.