What is a GMP Contract?
A GMP Contract is a construction agreement that sets a ceiling on the project costs. The contractor is reimbursed for actual costs incurred, plus a fee, but the total compensation will not exceed the guaranteed maximum price. If the project costs are less than the GMP, the owner benefits from the savings. Conversely, if costs exceed the GMP, the contractor absorbs the excess expenses.
GMP Construction Contract
GMP Contracts are commonly used in construction projects to provide a balance between cost control and flexibility. They offer the Project Owner cost predictability while incentivizing the contractor to manage costs efficiently. This contract type is particularly useful for projects where the scope is not fully defined at the outset but needs a cap on potential costs.
GMP Contract Features
Overview of the key features and uses of a GMP Contract include:
- Guaranteed Maximum Price: The agreed-upon ceiling price that the contractor guarantees will not be exceeded.
- Cost Reimbursement: The contractor is reimbursed for actual costs incurred, including materials, labor, and other expenses, plus a fee for overhead and profit.
- Scope of Work: A detailed description of the work to be performed, which serves as the basis for the GMP.
- Contingency Fund: An amount included within the GMP to cover unforeseen costs or changes in scope. This fund helps manage risks and ensures the project stays within budget.
- Savings Clause: If the actual project costs are less than the GMP, the savings may be shared between the Project Owner and the contractor, depending on the contract terms.
- Change Orders: Procedures for handling changes in the project scope that may affect the GMP, including how costs are adjusted and approved.
GMP Contract vs. Lump Sum
- GMP Contract: Provides a maximum price cap for the project, with the contractor reimbursed for actual costs plus a fee. Offers cost certainty and flexibility but requires detailed cost tracking and management.
- Lump Sum Contract: A fixed-price contract where the contractor agrees to complete the project for a predetermined amount. Simpler to manage but less flexible in handling scope changes.
GMP Contract Pros and Cons
Pros:
- Cost Certainty: Provides a maximum price cap, offering predictability and reducing financial risk for the project owner.
- Incentivizes Cost Savings: Contractors are motivated to manage costs efficiently to stay under the GMP, potentially sharing in the savings.
- Flexibility: Allows for adjustments in project scope and design, accommodating changes as the project progresses.
- Risk Management: Includes contingencies to cover unforeseen expenses, helping to manage risks effectively.
Cons:
- Complexity: Requires detailed cost tracking and management, which can be more complex and time-consuming.
- Potential for Disputes: Ambiguities in scope or cost estimation can lead to disagreements between the project owner and contractor.
- Increased Oversight: Requires continuous monitoring and regular updates to ensure costs remain within the GMP.
- Risk to Contractor: If costs exceed the GMP, the contractor absorbs the excess expenses, which can lead to financial strain.
How to Use a GMP Contract
- Define Project Scope: Clearly outline the project scope, including detailed plans, specifications, and requirements.
- Develop Cost Estimates: Prepare comprehensive cost estimates that cover all aspects of the project, including a contingency fund.
- Set the GMP: Establish the guaranteed maximum price based on the cost estimates and agreed scope.
- Monitor Costs: Continuously track project costs and compare them against the GMP to identify potential overruns early.
- Manage Changes: Implement a structured process for handling change orders, ensuring all modifications are documented and approved.
AIA GMP Contract
AIA A102 forms part of a suite of documents standardized by the AIA to streamline and standardize the administration of construction contracts and project management tasks and is protected by copyright and not free. For more information or to obtain the AIA A102 contract document, interested parties can visit the official American Institute of Architects website or authorized distributors of AIA contract documents.
