A guaranteed maximum price (GMP) contract sets a ceiling on what the Client will pay. The contractor is reimbursed its actual cost plus a fee, up to the agreed cap. If the cost goes over the GMP, the contractor pays the excess. If the cost comes in below, the saving is often shared.
The term comes from US practice. In the UK it appears mostly as a bespoke amendment to a design and build contract, not as a standard form.
Worked example
A GMP of £3,000,000 is agreed, made up of £2,700,000 estimated cost of work and a £300,000 fee. Savings are split 50/50 between client and contractor, and overruns fall wholly on the contractor.
| Outcome | Actual cost | Saving or overrun | Contractor's result |
|---|---|---|---|
| Under budget | £2,600,000 | £100,000 saved | Fee £300,000 plus £50,000 share = £350,000 |
| On budget | £2,700,000 | None | Fee £300,000 |
| Over budget | £2,850,000 | £150,000 over the cost estimate | Client pays the £3,000,000 cap; contractor keeps £150,000 after costs |
The third row shows the real risk: the client still pays only £3,000,000, so the contractor's fee is eaten by the overrun.
Tracking cost against the cap
The GMP is a budget with a wall at the end. Track actual cost plus committed cost plus cost to complete against it every month, and record the forecast overrun or saving. Changes approved by the client increase the GMP, and each one should be written up with its price before the work is done. Contingency inside the GMP is usually the contractor's to manage, so record each draw on it.
Document every cost with an order and invoice. Cost-reimbursable contracts allow the client to audit allowable cost.
In the UK
The UK standard forms have no GMP contract, so a UK GMP is usually a design and build contract with amendments.
The nearest standard forms are a lump sum, which is a fixed price from the start, and a Target Cost Contract, where the contractor and client share overruns and savings by an agreed formula instead of a hard cap. Check carefully whether any "maximum" wording in a UK contract caps the contractor's exposure or only the client's.
Related terms
Guaranteed Maximum Price (GMP) Adjustment, Target Cost Contract, Lump Sum Contract, Cost-Plus Contract, Construction Management at Risk (CMAR).
Planyard's forecasting compares actual cost, commitments and cost to complete with the budget, so a contractor can see a forecast overrun against a cap while it can still be managed.
