Construction Term of the Month: GMP – Guaranteed Maximum Price

GMP – Guaranteed Maximum Price – is a misunderstood yet widely used contract form of agreement.  A GMP represents the guaranteed maximum price based upon a certain set of contract documents (e.g. plans, specifications).

GMP is also based upon certain assumptions, clarifications and allowances assumed by the general contractor in his price.

We love this example from “How Guaranteed Maximum Price Contracts Work” by Chris Opfer of HowStuffWorks.com:

“Consider, for example, a GMP under which a contractor  agrees to build a patio in exchange for actual costs and a $3,000 flat fee, subject to a $10,000 maximum price. Upon completion of the work, the contractor will be paid for all costs so long as the total amount, including the fee, does not exceed $10,000. If the contractor’s costs amount to $8,000, it will not be paid $11,000 ($8,000 in costs + $3,000 fee), but rather the $10,000 maximum price. Conversely, if the contractor’s costs amount to $5,000, it will not be paid the $10,000 maximum price, but rather $8,000.”

Resources:

• Construction Fee Structures: GMP vs. Cost Plus
• Construction Contracts: The 10 Most Important Terms – Price
• The trouble with GMP