A guaranteed maximum price (GMP) adjustment is a formal change to the spending cap in a GMP contract, agreed between owner and contractor through a change order. Because the contractor normally absorbs any cost above the GMP, the cap can only move when the scope itself changes, such as added work, a verified unforeseen site condition, or an owner-directed design change, not simply because costs ran higher than estimated. Most GMP contracts also carry their own contingency line to absorb minor cost growth without a formal adjustment; the adjustment process only comes into play once that contingency is used up or the change is big enough to justify revising the cap itself.
A worked example
A renovation is contracted at a GMP of $2,400,000. During excavation, the contractor hits rock that wasn't shown in the geotechnical report, requiring specialist breaking equipment and three extra weeks of work. The owner and contractor agree a change order adding $85,000 to cover the extra excavation, taking the GMP from $2,400,000 to a revised $2,485,000. Costs for the rock excavation are tracked against that change order, while any unrelated cost growth elsewhere in the job still has to come out of the original cap.
Where a GMP adjustment shows up in a cost report
A GMP adjustment is recorded as a change to the budget ceiling itself, alongside the change order that caused it, not as an ordinary cost line. A cost report after the adjustment should show the original GMP, the approved adjustment, and the revised GMP as separate figures, so anyone reading it can see how much of the increase came from agreed scope changes versus from cost performance against the cap.
Related terms: Cost-Plus Contract, Contingency Budget, Change Directive, Guaranteed Maximum Price (GMP) Contract.
In Planyard, a GMP adjustment is recorded as a change order linked to the budget line it affects, so the revised cap and the reason for it stay attached to the project record. See construction change order software.
FAQs
Can a GMP be reduced if savings occur?
The GMP itself isn't reduced, but many GMP contracts include a savings clause that splits the gap between the GMP and the actual final cost between owner and contractor, usually in a ratio set out in the contract.
What happens if actual costs exceed the GMP?
The contractor absorbs the overage, unless it's tied to a change order that has formally adjusted the GMP upward, or the contract's own terms say otherwise.