Under the guaranteed maximum price (GMP) construction contract delivery method, great care and attention must be given by the owner and construction manager (CM) to setting the GMP, usually done by way of a “GMP Amendment.” From the owner’s perspective, the GMP should be all inclusive, leaving little room for increases in cost; from the CM’s perspective, the GMP should allow for cost increases over which it has no control. A well thought out GMP will address both interests.
Timing of the GMP
GMP agreements are most often used when the owner requires a firm price prior to completing the plans for the project and before the purchase of all trades by the CM. This is usually driven by a lender or some other circumstance requiring an early maximum price. However, because the plans are not 100% complete and the trades are not 100% bought, a fair amount of cost estimation (and assumption of risk) is required by the CM in proposing the GMP. For this reason, both CMs and owners seek to limit the risk by deferring the setting of the GMP until greater price certainty can be established; thus, the GMP proposal by the CM is customarily not made until the plans are at least 80% complete and the trades are at least 80% bought. Waiting until this point is in the best interests of both parties and may reduce the amount of the contingency (discussed below) requested by the CM.
