5 Reasons You Need to Learn More About GMP Contracting

Association of Construction and Development
January 7, 2013 — 3,018 views  

GMP contracting or Guaranteed Maximum Price contracting is a type of contract in which the contractor needs to pay the real costs and a fixed fee which is subjected to the ceiling price. This contract establishes the price for a specific kind of work, which cannot be exceeded.

The GMP project team consists of the owner of the project, engineers, architects, contractors, and consultants. It’s necessary for a construction professional to be aware of the details of a GMP contract, as it plays a very important role in all stages of the construction process.

Listed below are 5 reasons that explain why you need to learn more about GMP contracting.

Control Building Costs

With a sound idea of GMP contract, you will be able to control the building costs of your project as a client. The contractor in the GMP project team will give a particular price to manage the construction process and also a fixed percentage for profit and overhead costs. The contractor will also provide estimates regularly, during the design process. Using the information obtained in this manner, the design team will be able to arrive at a reasonable budget for the project.

Manage the Schedule

A major advantage of GMP contract is the smooth management of the work schedule. Here, you will be able to cut down the total design schedule and construction schedule so as to meet the deadline. The construction will begin in phases, so that it gives time for the design to be completed along with the progress of the building construction. In case issues arise in the construction process, the schedule can be worked upon again. This will allow the project to move along smoothly.

Manage the Scope of Work

Guaranteed Maximum Price contracting allows the contractor and the client to work together to define and manage the scope of work. At the end of design development of the project, the scope of work should be appropriately defined for its pricing. An overall bid for the project will be proposed by the contractor. The bid which is proposed for the project will be final and cannot be changed. However, the contract can be altered if the client requests a change of scope of work. This scenario will arise if the client wants higher quality materials or additional constructions. In such a case, the contractor will be held responsible for cost overruns that happen.

Earn Extra Profit

A GMP contract has provisions which allow the contractor to suggest some changes to the client’s original plans, so that the overall cost decreases. In such a case, there will be a surplus amount which is obtained after the new plan is implemented. This extra profit will either be shared between the client and the contractor or will be offered to the contractor.

Prevents Wastage

Following a contract that mentions good manufacturing practices will prevent the wastage of goods and services. So, it is essential to practice and implement a GMP contract when one is dealing with huge projects. This is very much applicable in the case of governmental contracts which are based on bidding and requires a high level of accountability.

Association of Construction and Development