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