Buyout savings (or losses) are measured trade by trade: budget minus committed cost. A $1.2M concrete budget bought out at $1.1M produces $100,000 of buyout savings. A trade bought out over budget produces a buyout loss.
What happens next depends on the contract:
- Lump sum: savings generally belong to the contractor, though they’re not final until the work is done.
- Cost-plus with GMP: savings usually go first to the GMP’s savings pool or contingency, and the contract decides whether they’re shared now, at final reconciliation, or not at all.
- Internal policy: many GCs move buyout savings into a project contingency rather than straight to forecast profit, to cover scope gaps and future risk.
Why it matters
Buyout savings can be real profit or a mirage. A sub’s low number might exclude scope another trade was supposed to carry, or the sub may be underpriced enough to fail. Recognizing savings too early inflates forecast margin, and when the gaps show up later it becomes margin fade.
Worked example
Illustrative: a mechanical budget of $3,400,000 is bought out at $3,250,000, so $150,000 of savings. Leveling finds $40,000 of controls scope excluded, and it’s bought separately. Net buyout savings are $110,000. Under a GMP, that $110,000 goes to the savings pool; on a lump sum job, the GC might hold it in contingency until the trade is substantially complete.
Common mistakes
- Counting savings before checking scope gaps.
- Moving savings straight to profit on the WIP.
- Offsetting a loss in one trade with savings elsewhere, hiding the problem.
How os.construction handles it
We’re building budget, commitments and contingency on one ledger so buyout variance per line, and where it went, are traceable. It’s in development.