What are Shared Savings
Definition of Shared Savings in Construction
The term shared savings in construction, refers to a particular aspect of a construction management agreement. In many cases, if there are savings on the project, the owner and the construction manager will share in the savings. This is called a shared savings clause. The reason for the shared savings clause is to incentivize the construction manager to try and save money. If there is a shared savings clause in the construction management agreement, then there is a reason for the construction manager to actively pursue savings suggestions, as well as more efficiently manage the project. Without the shared savings clause in the construction management agreement, there would be no additional incentive to save the owner money. The shared savings clause will be based upon a negotiation between the owner and the construction manager at the beginning of the project. Normally there is a percentage agreement that is linked to the shared savings clause, which will determine the percentage of the savings that the owner will retain, and the percent that will go to the construction manager as a basic reward for saving money on the project. In most construction management agreements, it is a good idea to have shared savings clause to stimulate the construction manager to accommodate this agreement by saving as much money as possible.