HPM Construction Audit & Advisory Services: Shared Savings: Incentive or Illusion?

By Vince Chapman, HPM VP of Audit & Advisory Services

We review between 75 and 100 GMP construction contracts a year, and about 40% have a shared savings clause. If you’re in that 40%, we should talk. What appears to be an incentive for the CM to save money may not be in your best interest.

Captain Obvious here: A CM/Contractor is in the business to make money. Protecting the contractor’s fee comes first. If they protect their fee and finish under budget, the difference is called savings. With shared savings, the CM gets a piece – typically 30%. Sometimes that comes from working hard to drive value… and sometimes it comes from inflating the GMP on the front end. Unfortunately, the latter is much easier.

If the CM’s first obligation is protecting their fee, most of the heavy lifting happens early: buying out the Work and scheduling the activities. A CM needs no additional incentive here. Later, as the project progresses, discretionary spending decisions – scope judgment calls, schedule tweaks, or directed overtime – can affect both timeline and savings. You could argue that incentivizing savings in these areas benefits the Owner. But because it’s so easy to sandbag the initial estimate, we advise any Owner, using shared savings, to cap the maximum value of savings participation rather than leaving it wide open.

The Bigger Picture:
Shared savings can work—but only when the incentives are structured to reward actual performance, not creative estimating.

Key Takeaways for Owners:
• Shared savings often incentivize inflated GMPs more than true efficiency.
• CMs already protect their fee without extra incentives—don’t pay for what you’re already getting.
• If using shared savings, cap the CM’s upside so the Owner doesn’t overpay for illusory “savings.”

If your contract includes a shared savings clause—or you’re considering one—let’s review it. A 30‑minute conversation could save you more than any “shared savings” ever will.