Case Study 11.2 — Bellhaven: A GMP Set on 55% Documents

A job I ran, early, and got wrong. Bellhaven Senior Communities, Halvard Development, and the people in this account are illustrative composites; the sequence, the arithmetic, and the mistake are real enough that I still think about them.

Setup

The project. Bellhaven Senior Living — 148,000 SF, three stories plus a single-story memory-care wing, wood frame over a podium slab, 118 independent- and assisted-living units, a commercial kitchen and dining room, a therapy suite, and a 26-bed memory-care wing with secured egress. CM at Risk with a GMP. Sixteen-month contract.

The people. Ray Alvarez, project manager — my second job carrying a GMP. Corinne Halvard, developer and owner, sharp and personally invested, financing through a construction loan with a hard rate-lock expiry. Kestrel's estimator on the job was a good one; I did not listen to him carefully enough.

The pressure. Corinne's construction loan rate lock expired in eleven weeks. Her lender required a signed GMP before closing. The architect was at 55% construction documents and would not be at 100% for another fourteen weeks.

The decision. I set a GMP of $31,400,000 on 55% documents, with a construction contingency of $628,000 — 2.0% — and a qualifications and assumptions page consisting of one paragraph, ninety-four words long, whose operative sentence was: "This proposal is based on the documents referenced above and our understanding of the project's scope and intent."

I knew, in a general way, that this was thin. I told myself the drawings were "basically done." I wanted the job, Corinne needed the closing, and everybody in the room was relieved when I said yes.

What happens

The first six change orders, in the order they arrived

Gross change value in the first six change orders: $1,266,800. Kestrel absorbed: $214,600 + $58,300 + $127,400 + $79,700 = $480,000.

The contingency

76.4% of the contingency was gone in the first 31% of the schedule, and none of it had been spent on anything a construction contingency is actually for — no weather, no productivity loss, no subcontractor default, no field condition. All four absorptions were document-completeness risk: the cost of the drawings finishing themselves between 55% and 100%.

That is a design contingency's job. I did not carry a design contingency, because I had told everyone the documents were basically done.

What it did to the relationship

Change order 004 was the hinge. Nine weeks of dispute over a siding profile.

Corinne, month 5: "Ray, when you gave me the number, did you know the profile wasn't picked?"

I did. Of course I did. It said TBD on the drawing.

Corinne: "Then why isn't there a line in your proposal that says which profile you priced?"

There is no answer to that question. There is only the answer.

Ray: "There should be. That's on me."

She was fair about it — she paid $141,000 on a $268,400 request, which was more than she had to and less than I wanted. But something changed after that meeting that never changed back. Corinne began reading every submittal as an attempt to recover money. My superintendent stopped volunteering solutions in the OAC meeting because every suggestion turned into a scope argument. I started writing letters instead of making phone calls. By month eight there were two projects running: the one being built, and the one being papered.

How it ended

We finished 9 calendar days late and inside a weather provision that covered it. Quality was good — Margo would not have let it be otherwise. Over the full job, Kestrel absorbed $1,085,000 in change cost against a fee of $1,177,500.

Kestrel's final fee on Bellhaven: $92,500 on a $31.4 million project. About three-tenths of one percent.

Corinne built two more communities in the following five years. She did not call us.

Analysis

The mistake was not setting a GMP on 55% documents. That happens, sometimes for good reasons, and it can be done responsibly. The mistake was setting a GMP on 55% documents as though they were 100% documents — with a 100%-document contingency and a 100%-document assumptions page.

An honest GMP at 55% would have carried:

• a design contingency of roughly 5–7% ($1.5M–$2.2M), explicitly named as such, explicitly to be reconciled and returned as the documents completed;
• a construction contingency of 3–4% on top of it;
• allowances with written definitions for every "TBD" on the drawings — the siding profile, the kitchen equipment package, the fire alarm system class;
• and a qualifications page listing every assumption the price depended on.

Would Corinne have accepted a higher number? Probably not the first one I showed her. But there were three or four honest structures available that I never put on the table — a GMP with a defined design-contingency reconciliation, a phased GMP with early packages bought first, an open-book conversion at 100% CD. I did not lose the negotiation. I never had it.

The four absorbed change orders share one root cause. Look at 001, 002, 004, and 006 together: fire rating, kitchen equipment, siding profile, fire-alarm class. Every one of them is a decision that was visibly open on the 55% set. Every one of them could have been a numbered line on a qualifications page written in an afternoon:

"Corridor assemblies are priced as one-hour rated per Sheet A-501. Any rating increase required by plan review is a change." "Food-service equipment is priced per the schedule on Sheet FS-101 dated [date]. The operator's final equipment package has not been received. Electrical, ventilation, and structural provisions for equipment not on that schedule are excluded." "Exterior siding is priced as 8-inch smooth-lap fiber cement on a furred wood substrate. Profile and attachment system are not selected; a rainscreen or proprietary sub-framing system is excluded." "Fire alarm is priced as a conventional system per Sheet FA-101. An addressable system, voice evacuation, or mass-notification capability is excluded."

Four sentences. Roughly $480,000. That is a rate of about $120,000 a sentence, and it is the best-paid writing I have ever failed to do.

The contingency arithmetic was the tell, and I did not read it. Burning 76% of contingency in 31% of the schedule is a signal, not a coincidence. Had I tracked contingency burn rate against schedule progress from month one — a control that costs nothing and takes ten minutes a month — I would have seen it in month three, when there was still time to go to Corinne with a structured conversation instead of a sequence of surprises.

The relationship cost exceeded the money. $1,085,000 is recoverable; Kestrel had other work that year. Two subsequent communities we never bid are not. A construction manager's actual balance sheet is the list of owners who call back.

Discussion questions

1. Corinne's rate lock expired in eleven weeks and her lender required a signed GMP. Design three alternative structures Ray could have proposed that give her a bankable number on that timeline without pretending 55% documents are 100% documents. For each, say what the lender would need to accept and what Kestrel gives up.

2. CO 001 (fire-rated corridors, $214,600) was absorbed entirely because the contract required "all work required by applicable codes." Is that clause unfair? Write the qualification sentence that would have preserved Kestrel's position without asking the owner to accept code risk they should not carry.

3. CO 003 (the unit-mix change, $342,000) was paid in full with no dispute, while CO 004 ($268,400) took nine weeks and settled at 53%. Both were changes. What is the structural difference, and what does it tell you about where disputes actually come from?

4. Ray absorbed $58,300 of CO 002 as "coordination we should have anticipated." Was that the right call, or was it a PM conceding a defensible position to keep an owner happy? Argue both sides, then decide.

5. Compare Bellhaven to Northgate (case study 11.1). Northgate's GMP carried $1,320,000 of construction contingency, zero design contingency, and a fourteen-item qualifications page — and Northgate had CO #14, a $186,400 change order that still cost Kestrel $43,650. What did the qualifications page actually buy, if it did not prevent the change order?

Your turn

Part 1. Write the qualifications, clarifications, assumptions, and allowances page that should have accompanied the Bellhaven GMP. Minimum twelve numbered items. At least four must directly address the open decisions behind CO 001, 002, 004, and 006. At least two must be allowances with a dollar amount and a written definition of what the allowance buys. At least one must address the owner-decision dates the price depends on.

Part 2. Build the contingency-burn tracker Ray did not have: a small table with columns for month, schedule percent complete, contingency drawn this month, cumulative drawn, percent of contingency remaining, and a trigger column. Define the specific threshold that fires an escalation to the owner — and write the two-sentence message that goes out when it fires.