What Is a Guaranteed Maximum Price Contract

A guaranteed maximum price (GMP) contract is a type of construction contract where the contractor agrees to complete a project for a predetermined price that is guaranteed not to exceed a certain amount. This type of contract is commonly used in construction projects where the exact cost of construction cannot be determined beforehand.

In a GMP contract, the contractor is responsible for all construction-related costs, including materials, labor, and equipment. The ultimate goal of a GMP contract is to protect both the owner and the contractor from unexpected cost overruns.

One of the key benefits of a GMP contract is that it provides the owner with a clear understanding of the project costs upfront. This allows the owner to budget and plan more effectively, as they know exactly how much the project will cost.

Furthermore, with a GMP contract, the contractor is incentivized to complete the project within the agreed-upon budget. This is because any additional costs that are not included in the GMP must be paid for by the contractor, not the owner.

A GMP contract is typically negotiated between the owner and contractor before construction begins. Once a GMP is agreed upon, any changes to the project scope must be approved by both parties before work can continue. This helps to prevent unexpected costs from arising, and ensures that the project remains within budget.

In conclusion, a GMP contract is a useful tool in the construction industry that provides both the owner and the contractor with peace of mind. By agreeing to a guaranteed maximum price, owners can better plan and budget for their construction projects, while contractors are incentivized to complete the project on time and within budget.