Understanding a GMP Contract

Association of Construction and Development
May 30, 2012 — 1,682 views  

If you are a contractor or construction professional, it is important that you understand the concept of Guaranteed Maximum Price (GMP). A GMP contract establishes the maximum compensation a person can receive on top of material costs, and essentially sets a fixed fee to be paid after the completion of a project or service.

Some of the components of this contract are fairly complex. For example, the complete scope of the project must be outlined in the construction contract, including any anticipated but not definitive costs that might result from purchasing materials, tools or other machinery. The final GMP will be compared to these estimates after work is completed, and may be adjusted if the budget is over-extended. However, the fixed fee will not change, so that the contractor receives the agreed-upon contract.

It is also important to note that a savings clause may be beneficial to both parties in this situation. This means that if a contractor can find some way to save on building expenses, the difference will be split between the professional and the customer. The project will still cost less from the consumer's standpoint, and the worker will receive slightly extra compensation.

Association of Construction and Development