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Estimating & Biddingaka: GMP

Guaranteed Maximum Price

In Plain English

A contract clause setting a cost ceiling the contractor cannot exceed, protecting the owner from cost overruns.

Definition

A guaranteed maximum price (GMP) is a contract provision in which the contractor agrees not to exceed a stated maximum project cost, with the owner bearing no cost risk above that figure. If actual costs come in below the GMP, savings may be shared between owner and contractor. GMP contracts are common in construction manager at risk and design-build delivery.

Why It Matters in Bidding

GMP contracts shift overrun risk from the owner to the contractor above a stated ceiling, which fundamentally changes how a bid is priced and contingency is carried. Estimators must build a defensible cost model with clear assumptions because everything above the GMP comes out of the contractor's pocket, while shared-savings clauses reward tight buyout and value engineering.

Example

On a $48M hospital fit-out, the CM-at-risk submitted a GMP with a detailed estimate plus a 3% contingency, and a 50/50 shared-savings clause returned $600K to the owner after favorable subcontractor buyout.

Related Terms

Cost Plus ContractLump SumConstruction Manager at RiskChange Order

Frequently Asked Questions

The contractor builds it from a detailed estimate of all direct costs, subcontractor pricing, general conditions, contingency, and fee, then caps the total. Because design is often incomplete when the GMP is set, estimators add allowances and clearly listed assumptions for unresolved scope, since anything above the cap becomes the contractor's loss.
A lump sum is one fixed price the contractor keeps any savings from, with costs hidden. A GMP is open-book: the owner sees actual costs, pays them up to the ceiling, and savings below the cap are often shared. GMP suits incomplete designs; lump sum needs fully defined scope.
The contractor absorbs costs above the GMP unless the overrun stems from owner-directed change orders, scope additions, or qualifying allowances. This is why estimators document inclusions, exclusions, and contingency carefully during preconstruction, and why approved change orders formally raise the cap rather than eroding the contractor's fee.

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