What Is Guaranteed Maximum Price (GMP)?

Guaranteed Maximum Price, or GMP, is used to refer to a type of contract and a financial principle that characterizes those contracts. GMP contracts are particular to the construction industry and are between a construction company (the Contractor) and a business (the Employer or Client) that hires them to build a structure.

Guaranteed Maximum Price

The financial principle of GMP states that the Contractor will be compensated for all actual costs associated with building the structure, as well as the guaranteed maximum price--a fixed fee with a ceiling (maximum) price. In most cases, especially when due to Contractor error, the Contractor is responsible for building costs that exceed the GMP.

Scope of Works

During construction, the GMP can usually only be altered in the instance of the Client requesting a change in the scope of works. This means the Client wants additional construction or higher quality materials that will naturally result in further expenses for the Contractor. A mechanism to adjust the original GMP accordingly is a fixture of GMP contracts.

Surplus

GMP contracts usually include a provision allowing the Contractor to suggest changes to the Client`s plans with the goal of decreasing overall costs. This stipulation can have the surplus amount split between both parties or going to the Contractor as profit.

References

• Cannonway Consultants Limited: Is "Guaranteed Maximum Price" The Way To Go?

Resources

• The Consus Group: Guaranteed Maximum Price Construction Agreement