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April 26, 2023

Guaranteed maximum price (GMP) contracts are becoming increasingly popular in the construction industry. These contracts provide the client with a guaranteed maximum price for a construction project, while still allowing for flexibility in the design and construction process. GMP contracts are particularly useful in projects where the scope and specifications may change throughout the construction process.

In a GMP contract, the contractor agrees to deliver the project within a certain budget, which is typically negotiated between the contractor and the client. The contract specifies a maximum price, but it also allows for cost savings to be passed on to the client if the project comes in under budget. This incentivizes the contractor to find efficiencies and reduce costs throughout the construction process.

GMP contracts also allow for more flexibility in the design and construction process. This is because the contractor is not locked into a specific scope of work or design from the outset. Instead, the contractor can work collaboratively with the client to make changes and adjustments as needed, while still staying within the agreed-upon budget. This can lead to a better outcome for the client, as the final product will better meet their needs and expectations.

Another advantage of GMP contracts is that they can help mitigate risk for both the client and the contractor. By agreeing to a maximum price, the client can be confident that they will not be hit with unexpected cost overruns. Similarly, the contractor knows that they will not be responsible for any cost overruns beyond the agreed-upon maximum price.

In conclusion, GMP contracts are an effective tool for managing risk and ensuring that construction projects are completed within budget. By providing a guaranteed maximum price while still allowing for flexibility in the design and construction process, these contracts can lead to a better outcome for both the owner and contractor.

AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.