As part of the Maximum Guaranteed Price (GMP) construction contract delivery method, the owner and the Construction Manager (CM) must take great care and attention to the definition of GMP, usually by means of ‘a “GMP amendment”. From an owner’s perspective, GMP should be all-inclusive, leaving little room for cost increases; from the CM’s point of view, the GMP should allow cost increases over which it has no control. A well thought out BPF will meet both interests.
Moment of GMP
GMP agreements are most often used when the owner demands a firm price before finalizing the plans for the project and before the purchase of all trades by the CM. This is usually motivated by a lender or some other circumstance requiring an anticipated maximum price. However, since plans are not 100% complete and transactions are not 100% purchased, a good cost estimate (and assumption of risk) is required by the CM to offer GMP. For this reason, both CMs and owners seek to limit risk by deferring the setting of GMP until greater price certainty can be established; thus, the GMP proposal by the CM is generally not made until plans are at least 80% complete and transactions are at least 80% purchased. Waiting until this point is in the best interests of both parties and may reduce the amount of contingency (discussed below) requested by the CM.