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Acronymsaka: guaranteed maximum priceaka: GMP contract

GMP (Guaranteed Maximum Price)

In Plain English

A contract price cap where the contractor absorbs any cost overruns beyond the agreed maximum.

Definition

A Guaranteed Maximum Price is a contract pricing structure in which the contractor agrees to complete the project for a stated maximum cost, assuming financial responsibility for costs exceeding that amount unless they result from owner-directed changes. Savings below the GMP may be shared between owner and contractor according to a negotiated split. GMP contracts are common in CMAR delivery and allow projects to begin construction before design is fully complete, while capping the owner's cost exposure.

Why It Matters in Bidding

A GMP contract caps the owner's maximum cost while shifting overrun risk to the contractor, making it a central procurement decision that determines how risk, contingency, and savings are shared. In bidding terms, the GMP is built from estimated costs plus a fee and a contingency, and any cost above the cap is the contractor's responsibility, so how the GMP is assembled, what it includes, and whether savings are shared materially affect both parties' financial exposure.

Example

The CMAR delivered a $22 million GMP after design development; when steel pricing rose mid-project, the contractor absorbed the overage from its contingency rather than billing the owner above the cap.

Related Terms

CMAR (Construction Manager at Risk)DB (Design-Build)SOV (Schedule of Values)

Frequently Asked Questions

A GMP is built from the estimated cost of the work, including subcontractor bids, materials, labor, and general conditions, plus the contractor's fee and a contingency for unknowns. It is typically set once design is far enough along to estimate scope reliably, and the resulting figure becomes the ceiling the owner will not exceed for the defined scope.
If actual costs fall below the GMP, the contract terms govern the difference. Many GMP contracts include a shared-savings clause that splits the underrun between owner and contractor by a negotiated percentage, while others return all savings to the owner. Either way, the structure pushes the contractor to control costs rather than simply spend up to the cap.
A lump-sum bid is a single fixed price where the contractor keeps any savings and absorbs overruns, with little cost transparency. A GMP is an open-book cost-plus arrangement with a ceiling, so the owner sees actual costs and may share savings while the contractor still guarantees the maximum. GMP fits projects priced before design is fully complete.

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