A developer sends me a general contractor's proposal and says the number is locked. Guaranteed maximum price. Signed by the GC. Cost certainty, purchased.

Then I open the attachment and go straight to the back.

The back is where the deal actually lives. Allowances, alternates, unit prices, exclusions, clarifications. Four or five pages that most owners scroll past on the way to the signature block. Those pages decide how much of that guaranteed number is guaranteed.

Four Words That Are Not the Same Thing

Here is the distinction that costs people money. An allowance is not a price. An allowance is a placeholder the contractor inserts because the drawings do not yet say enough for a subcontractor to bid the work. Windows are an allowance because the window schedule is not finished. Appliances are an allowance because nobody has picked appliances. The contractor carries a plug number, and when the real number arrives, you pay the difference. That is not a change order in the adversarial sense. It is the contract working exactly as written.

An exclusion is different. An exclusion is scope that is not in the number at all. Hazardous material abatement. Offsite utility work. Special inspections. Testing and commissioning. Winter conditions. If it is excluded and the project needs it, you buy it separately, at whatever it costs when you need it.

A unit price is a rate, not a quantity. Rock excavation at a dollar figure per cubic yard is a rate you have agreed to. The quantity is unknown. On a site with any geotechnical question, that single line can move six figures without a single change to the drawings.

An alternate is a priced option you have not committed to yet. Useful, and mostly honest, because the price is real.

Then there is the qualifications page. Clarifications, assumptions, basis of proposal, whatever the GC's template calls it. Nobody reads it. It is the most important page in the document. It is where the contractor writes down what they assumed about your project when they priced it. Working hours. Crane access. Site logistics and laydown. Permit timing. Owner-furnished items. Which drawing set and which addendum the price is based on. Every one of those assumptions is a condition. Break a condition and the price is no longer the price.

The Design-Completeness Problem Nobody Names

Most small developers set a GMP off a 60 percent construction document set because they want a number before they close construction financing. That is a defensible business decision. Be honest about what it buys.

A GMP set at 60 percent documents prices risk, not scope. The contractor cannot price what has not been drawn, so they price what has been drawn and fill the remaining 40 percent with assumptions. Those assumptions land in the allowance schedule and the qualifications page. That is why the allowance schedule is the single best early read on drawing completeness available to you. Long list, large placeholders, vague descriptions, and the drawings are less finished than the title block claims. Short list, tight placeholders tied to specific specification sections, and the design team has done its work.

Count the allowance line items. That number tells you more about your risk than the cover page does.

Whose Contingency Is It

GMP contingency is the contractor's money. It sits inside the cost of work, typically 3 to 5 percent, and it exists to absorb their coordination misses, their buyout gaps, their subcontractor problems. It is not there for your scope changes, and it is not your owner contingency. Owner contingency is a separate number that lives in your budget, not theirs. Confusing the two is how a developer discovers in month seven that nobody was carrying the risk they thought was covered. How much owner contingency to carry is covered in the undercapitalization check.

Then read the savings-sharing language. If the project comes in under the GMP, who keeps the difference. Fifty-fifty is common. One hundred percent to owner exists. Some contracts quietly let the GC retain unspent contingency in full. That clause is worth real money and it is usually three sentences long.

Two more places to look. Escalation, because a proposal that assumes subcontractor pricing holds for 30 to 90 days is telling you the price expires, and a long-lead item like switchgear or elevators may carry its own escalation assumption tied to a purchase-order date you have not hit yet. And the delay clause, because owner-caused delay is the mechanism that converts your slow permit response or your late finish selection into their compensable claim. You control that one. Slowly, and only if you decide to.

The Check You Can Run This Week

  1. Pull the allowance schedule and the exclusion list out of the GC's proposal into their own document. Do not read them inside the proposal, where they are formatted to be skimmed.
  2. Count the allowance line items and write the count at the top. Then count the exclusions. Two numbers, on one page.
  3. For each allowance, price the realistic gap. What does that scope actually cost at your specification level, in this market, today. Subtract the allowance. That difference is your exposure on that line.
  4. For each exclusion, decide in writing whether the project needs it. If yes, get a real number. If unsure, carry the number anyway.
  5. Total the gaps and the needed exclusions. Compare that total against the owner contingency you are actually carrying, not the contractor's contingency inside the GMP.
  6. Read the qualifications page line by line and mark every assumption you cannot personally guarantee. Those are your open items. Resolve them before signing or price them.

If step five produces a number larger than your contingency, you do not have a cost problem yet. You have an information problem, and information is cheap right now. It gets expensive after the notice to proceed.

I spent years as broker of record for an institutionally backed value-add multifamily firm, north of a billion in assets under management, thousands of units through acquisition, disposition and repositioning. The pattern held at every scale. The deals that went sideways were rarely the ones with a bad number on the cover page. They were the ones where nobody had gone to the back of the document and counted.

Where does this project break, and how early can we catch it? On a construction contract, it usually breaks on the page nobody read.

So pull your proposal. How many allowance line items are in it, and what is the total gap?

Durata Advisory provides development advisory services only. The practice does not provide brokerage services, securities advice, capital raising, or investment solicitation. Advisory observations are general in nature and do not constitute legal, financial, or investment advice.

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