Guaranteed Maximum Price (GMP) contracts fall between fixed-price, lump-sum contracts and cost-plus contracts. Under a GMP contract, the contractor agrees to cover a guaranteed price for the contract work. If the actual price for the work is lower than the guaranteed price, the contractor also receives a portion of the savings. In other words, GMP contracts reward contractors for offering lower-cost work.<\/p>\n\n\n\n
Under a pure lump-sum contract, the contractor bears all the risk of cost overruns but keeps all the savings if costs come in under budget. Under pure cost-plus, the owner bears the overrun risk but also captures the full benefit if costs come in low. GMP splits that difference: the contractor is protected from unlimited exposure by the maximum price cap, the owner is protected from unlimited cost growth by that same cap, and any savings below the GMP are typically shared between the two parties according to a percentage split negotiated in the contract.<\/p>\n\n\n\n
GMP contracts are especially common on CM-at-risk delivery, where the contractor is brought on during design and works alongside the design team before the design is complete enough to actually price a guaranteed number. That timing matters: a GMP set too early, before design is sufficiently developed, carries a real risk that the contractor either priced too conservatively (leaving the owner paying for contingency that never gets used) or too aggressively (setting up disputes later about scope that wasn’t clearly defined at the time of pricing).<\/p>\n\n\n\n
Change order treatment under a GMP contract needs particular clarity, since a legitimate scope addition should adjust the GMP itself upward, while a coordination error that should have been caught during design typically shouldn’t, and defining that boundary precisely in the contract language, rather than leaving it to interpretation after a dispute arises, tends to save both parties considerable friction later in the project.<\/p>\n\n\n\n
Contingency handling under a GMP contract deserves specific attention in the contract language, since the GMP number typically includes a construction contingency intended to cover unforeseen issues within the contractor’s control, distinct from the owner’s separate contingency for scope changes initiated by the owner. Confusing which contingency covers which kind of cost is a recurring source of disagreement, particularly late in a project when contingency reserves are running thin, and both parties have a real incentive to argue a given cost belongs to the other party’s pool.<\/p>\n\n\n\n
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Guaranteed Maximum Price (GMP) contracts fall between fixed-price, lump-sum contracts and cost-plus contracts. Under a GMP contract, the contractor agrees to cover a guaranteed price for the contract work. If the actual price for the work is lower than the guaranteed price, the contractor also receives a portion of the savings. In other words, GMP […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8],"tags":[],"class_list":["post-95","post","type-post","status-publish","format-standard","hentry","category-g"],"yoast_head":"\n