question about cost plus fixed fee in AHPP book

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    Michael Teller

    Interesting comment. I don't have a clear answer, but can perhaps provide some commentary. As I understand it, cost plus fixed fee is just one "option" that could be utilized under the traditional delivery method. Three reasons for using this would be either 1) schedule is tight, and the project construction needs to be kicked off prior to design completion, 2) quality is of utmost importance and cost doesn't matter, or 3) full scope and extents not fully known. That said, I think the amount of risk an owner is willing to take on is also a consideration here, as well as the fact that a cost plus fee may allow room to negotiate the fee upfront to be paid the contractor once work is done.

    Cost plus fixed fee used in a CMc method would basically nullify any risk the contractor would otherwise take on, because a GMP would no longer be binding the CMc.

    Take a look at p.516, fig. 9.3 in the AHPP. This may help clarify things a bit as well.

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    Yan Zhang

    Thank you Michael for telling me your thought. I feel it makes sense now. I understand now "cost plus fixed fee" is just a special case under DBB.

     

    How can I understand when you say "a GMP would no longer be binding the CMC"? I know the most common with CMC is cost plus fee without GMP. Are you saying cost plus fee with GMP is not that common with CMC?

     

    Thanks,

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    Michael Teller

    Hi Yan - so my interpretations in this thread are all based on what I've seen in the AHPP.

    As you know, the CMc is "CM at Risk" because the CM develops the GMP. This is a cost the owner is led to believe will not be exceeded for their project. To state it another way, if the CM busts his/her GMP, the liability is on him/her - the CMc is bound by the GMP that they developed, and thus all the risk is on them. 

    Conversely, using a only "cost plus fixed fee" but for a CMc delivery method would eliminate any risk of the CMc breaking the budget, because now the project will cost whatever it will cost (as determined at the end of the project), and the CMc would get paid a fee to cover their O.H. and profit. In this instance the owner wouldn't necessarily care as much about costs; however, the owner could still continue to hold the CMc accountable for schedule and quality.

    A "cost plus fixed fee, with a GMP" could be used for a CMc delivery. Perhaps in this case the CMc would finish the project on, or below the GMP, and the owner could potentially save some money. 

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    Yan Zhang

    I get it. Thanks for the explanation Michael.

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