A Guaranteed Maximum Price (GMP) Contract sets an upper limit on project costs, ensuring that the client is protected from budget overruns. The contractor is incentivised to manage expenses, as any costs beyond the agreed maximum are typically absorbed by the contractor.

How GMP Contracts Protect Clients

In a GMP contract, the contractor provides the client with cost certainty, as the maximum price for the project is agreed upon upfront. If actual costs come in under the maximum, the savings may be shared between the contractor and client, further incentivising the contractor to manage costs efficiently.

Best Practices for Managing GMP Contracts

Contractors should carefully estimate all costs to ensure that the guaranteed maximum price is realistic. Regular monitoring of project expenses and clear communication with the client are essential to prevent exceeding the GMP. Contractors should also keep detailed records of costs in case adjustments are required. Related Terms: Lump Sum Contract, Cost-plus Contract

FAQs

What happens if the project costs exceed the guaranteed maximum price?

A: If costs exceed the GMP, the contractor is responsible for covering the overrun, protecting the client from additional expenses.

How do GMP contracts incentivise contractors to control costs?

A: Contractors are incentivised to manage costs effectively because any savings below the GMP may be shared, while cost overruns are absorbed by the contractor.

Guaranteed Maximum Price (GMP) Contract Definition

How GMP Contracts Protect Clients

Best Practices for Managing GMP Contracts

FAQs

What happens if the project costs exceed the guaranteed maximum price?

How do GMP contracts incentivise contractors to control costs?

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