A contract pricing method that establishes a ceiling price for construction work while sharing cost savings between owner and contractor.

Guaranteed Maximum Price (GMP) is a contract pricing method that establishes a ceiling price for construction work while sharing cost savings between owner and contractor through risk-sharing arrangements that provide cost certainty for owners while incentivizing contractors to control costs and improve efficiency. This innovative contract structure consists of a maximum price commitment from the contractor that includes all project costs plus fees, with provisions for sharing any savings below the GMP between the parties while protecting owners from cost overruns above the established maximum. GMP contracts are critical in construction project delivery where they balance risk allocation, provide cost certainty, encourage collaboration, and align contractor and owner interests, making them indispensable for complex projects, design-build delivery, and situations where owners need cost certainty while maintaining flexibility for design development and value engineering opportunities.

GMP contracts are utilized in various construction project delivery methods and applications including design-build projects where contractors provide both design and construction services within a guaranteed price, construction management at-risk delivery where construction managers guarantee project costs while providing preconstruction services, fast-track projects where construction begins before design completion with cost certainty requirements, renovation projects where existing conditions create cost uncertainties requiring risk management, public projects where budget certainty is essential for funding and approval processes, and complex projects where scope definition challenges require flexible pricing structures with cost protection. Each application requires appropriate GMP structure based on project characteristics, risk allocation preferences, and stakeholder requirements.

Structure and components of GMP contracts include the guaranteed maximum price that establishes the cost ceiling for all project work, cost of work provisions that define reimbursable project costs including labor, materials, equipment, and subcontractor costs, contractor fee structure that provides compensation for overhead and profit, contingency allowances that address unforeseen conditions and scope changes, shared savings provisions that allocate cost savings below the GMP between owner and contractor, and scope definition that clearly establishes what work is included within the guaranteed price. Proper structure ensures fair risk allocation and project success.

Fun Fact: The first GMP contract was used in the 1960s for hospital construction, and modern GMP projects can save owners 5-15% through shared savings incentives, while some large GMP projects have achieved savings of millions of dollars through effective collaboration and value engineering.

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