When building a custom home in Napa or Sonoma County, a Guaranteed Maximum Price (GMP) contract is frequently chosen as the best option for an owner. The opportunity for the owner to share in cost savings is a significant advantage of a GMP. The GMP will include many different estimates and bids for the elements of the project. Almost none of them will exactly match the final cost of that item. Therein lies the opportunity for savings, or on the other side, spending the contingency. As I detail the three major sources of savings, you can see how the owner influences the results.
The Importance of Using an Experienced New Home Builder in Napa or Sonoma
Interestingly, the prime source of savings is getting the job done more quickly. The GMP will include the estimated cost of supervising the work and providing support infrastructure (power, phones, water, offices, trucks & deliveries, porta-potties, etc.). Obviously, the sooner these monthly expenses stop, the more money is saved. Your contractor’s project management skill has the biggest effect on completion; planning, scheduling, organizing, controlling, communicating, and reporting are all critical. However, the owners can influence the project completion by understanding their responsibilities, mostly for making timely decisions. Probably the worst thing owners can do to hold up a project is waffle on decisions. Unmade and remade decisions cost time directly and demoralize the construction crew.
Another ready source of savings that the owner and contractor share control over is cost-effective control of quality. Both parties need to share a clear understanding of the quality level expected. If not, the contractor can both over-shoot on quality to avoid being criticized or under-shoot and have to redo work. It is as wasteful to take every detail to the nth degree when the owner does not care as it is to tear things out. This applies mostly to the issue of craftsmanship, not materials. If the owner chooses or agrees to a suggestion for lesser material, the full reduction in cost should be a credit to the owner, not shared savings.
The third most likely source of savings is overlaps in the scopes covered by various trades. Your contractor finds these opportunities when the project manager writes the subcontracts and purchase orders for the job and when the superintendent discusses job sequencing with the various tradesmen. The owner seldom has a way to contribute to this effort other than encouraging the search and applauding any success finding savings.
I hope this brief exploration explains some of the advantages when everyone on the construction team works together; both the owner and contractor win when there are savings on a GMP project.
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Jay True, former vice-president of JMA, became partners with Jim Murphy in 1987. In 2015, Jay and his wife Elaine True, our office manager, retired from JMA and moved to Michigan to escape the cool summers and warm winters in Santa Rosa.