Fixed price contract on a gut, or cost plus with a bench you trust, and where the guaranteed maximum version fails

Read this the way you would read a management agreement and the thing that jumps out is that cost plus makes you the manager. If the appeal of a strategy for you is that someone else runs it, cost plus takes that away and does not refund anything.

These two are worth comparing on paper before signing either, and the comparison is less close than it looks. The GMP failure mode, and the reason many GCs decline to offer one on a gut, is that the max only holds against the scope as drawn. Every discovery becomes a scope change, and a scope change resets the max. So on a gut, where discoveries are the job, the guarantee protects you against the part of the project you already understood. Which is the part that did not need protecting. The other thing is that a real GMP requires drawings detailed enough to price properly, and getting to that level of documentation on a distressed shell means paying for investigation before you own the house. Some buyers do exploratory demolition during the inspection period. Most sellers of distressed property will not allow it.

Windlass, that is the cleanest way anyone has put it. A guaranteed max is guaranteed against drawings, and a gut is defined by not having good drawings. It also explains why the paper side of construction looks so different from the paper side of notes. A note is priced against a document that already exists. A gut is priced against a building nobody has fully seen yet.

Six months of looking and no deals, so take the direction of this rather than the specifics.

Every experienced operator I've asked about this has answered a different question than the one I asked. I ask about contract structure and they tell me about the contractor. Their view is that fixed price with a GC you don't know is a fight you will lose, and cost plus with a GC you've done four jobs with is the cheapest way to build. The structure is downstream of whether you have a bench.

Which is unhelpful when you don't have a bench yet. The suggestion I got twice was to do a smaller scope first with someone you want to work with long term, specifically so the first gut isn't also the first time you've worked with them.

The risk premium deserves numbers, because everyone talks about it and nobody sizes it. Picture a capital partner who has seen bid sets on eleven heavy rehabs. On the projects where both a fixed price and a cost plus proposal came in from comparable GCs, the fixed price sat 11 to 19 percent above the cost plus estimate at the same scope. On the six cost plus jobs, final documented cost plus fee came in above the original estimate every time, about 14 percent over on average. The ranges overlap almost completely, which says the structure is not where the money gets decided. What does correlate is change order volume. Two jobs generating more than 20 change orders each, both fixed price with a GC the sponsor had never used before, are also the two that run longest. Six and five prove nothing about causation, but the pattern matches what pike is describing. Quill, the thing to have before signing either is the payment schedule and the lien waiver process, since who holds money at what stage decides how much argument you can actually afford to have. Mechanic's lien rules differ by state and the timing on waivers is state specific, so that part needs your attorney rather than this room.