Under a cost-plus-fee contract with a guaranteed maximum price, the owner pays actual cost plus fee up to the GMP, and the contractor pays any overrun above it. A shared savings clause covers the other direction. If the final cost of the work plus fee comes in under the GMP, the savings are split by an agreed ratio, such as 50/50, 75/25 (owner/contractor) or tiered, sometimes with a cap on the contractor’s share.
The contract needs to define what counts as savings. Questions that matter:
- Is unused contractor contingency included in the split, returned fully to the owner, or partly kept?
- Do buyout savings get shared when they’re realized, or only at final reconciliation?
- Are allowance underruns excluded, since they’re adjusted by change order anyway?
- Does the fee recalculate on actual cost, or stay fixed?
Why it matters
Shared savings align incentives: the contractor earns more by buying well and controlling cost. But they need open-book accounting the owner can audit, and they invite disputes when the GMP was padded or definitions are vague.
Worked example
Illustrative: GMP of $20,000,000. Final cost of the work plus fee is $19,400,000, so savings are $600,000. Under a 75/25 owner/contractor split, the owner keeps $450,000 and the contractor earns $150,000 on top of its fee.
Common mistakes
- No clear definition of which savings are shared.
- Spending contingency on items that should have been change orders.
- Waiting until final reconciliation to track savings at all.
How os.construction handles it
We’re building budgets, commitments and contingency on one ledger, so savings and their sources are traceable line by line for an open-book owner. It’s in development.