Guaranteed Maximum Price (GMP) Adjustment Definition

A GMP adjustment modifies the guaranteed maximum price in a Cost-Plus Contract due to project scope changes, unforeseen conditions, or negotiated revisions. GMP contracts set a spending cap, but adjustments may be necessary under certain conditions.

When GMP Adjustments Occur

GMP adjustments typically happen due to:

1. Design modifications – Changes requiring additional labor or materials.
2. Material price fluctuations – Rising costs that impact the initial budget.
3. Unanticipated site conditions – Unexpected complications that require extra work.

Managing GMP Adjustments Effectively

To minimize disputes and financial risks:

1. Clearly define adjustment clauses in contracts.
2. Use detailed cost tracking to justify necessary increases.
3. Maintain transparency with project stakeholders.

FAQs

Can a GMP be reduced if savings occur?

A: Yes, some GMP contracts allow cost savings to be shared between the owner and contractor.

What happens if actual costs exceed the GMP?

A: The contractor typically absorbs any overages unless a contract clause allows adjustments.