What does Guaranteed Maximum Price (GMP) entail?

Guaranteed Maximum Price (GMP) refers to a pricing structure in construction contracts where the contractor agrees to complete the project for a predetermined maximum price. This model is designed to incentivize the contractor to efficiently manage costs because if the project expenses exceed the GMP, the contractor absorbs those additional costs rather than passing them on to the owner. This arrangement encourages thorough planning and effective budgeting while allowing for flexibility in design and scope changes as long as they remain within the specified maximum price.

The essence of the GMP is to provide the project owner with financial predictability, as they will not be liable for costs beyond the agreed amount, making it a viable choice for those seeking to control their expenditures in real estate development. The relationship fostered through a GMP contract often leads to collaborative efforts between the owner and the contractor to find cost-saving measures, ultimately benefiting the project’s quality and timelines.