GLOSSARY

Guaranteed Maximum Price (GMP)

A guaranteed maximum price (GMP) is a construction contract price in which the contractor is reimbursed for the actual cost of the work plus a fee, up to a ceiling; costs above the ceiling are the contractor’s responsibility unless the owner changes the scope.

WHAT A GMP CONTAINS, AND WHO KEEPS THE DIFFERENCECOST OF WORKFEECONTINGENCYGUARANTEED MAXIMUM PRICETHE GMPACTUAL COSTSAVINGSUNDER: OWNER KEEPSOR SHARES SAVINGSOVERRUNACTUAL COSTOVER: CONTRACTORABSORBS THE OVERRUNOwner-directed scope changes adjust the GMP by change order; they are not overruns.
The contractor is paid actual cost plus fee up to the cap. Below the cap, savings go to the owner or are split as the contract says; above it, the contractor pays. Illustrative.

A GMP combines open-book cost reimbursement with a cap. It is the usual price form in construction manager at risk and in progressive design-build, and it is often set before the design is complete, which is why the contingencies, allowances and assumptions written into it matter as much as the number.

What a GMP includes

  • Cost of the work. Trade subcontracts, materials, equipment and the contractor’s own field costs, paid at actual cost.
  • Fee. The contractor’s overhead and profit, usually a percentage or a fixed amount.
  • Contractor contingency. Money inside the GMP for estimating gaps and risks the contractor carries, such as buyout shortfalls.
  • Allowances and assumptions. Placeholders for items not yet designed, and written assumptions that define what the price covers.

What happens at the end

  • Under the cap. Unspent money returns to the owner, or is shared according to a savings clause in the contract.
  • Over the cap. The contractor absorbs the overrun.
  • Owner changes. Scope the owner adds or changes adjusts the GMP by change order; it is not an overrun.

What to watch

  • Contingency drawdown. Ask how the contractor contingency can be used, and whether unused contingency comes back.
  • Allowance reconciliation. If allowances are low, the real price will rise through change orders.
  • Audit rights. Cost of work is open book; owners should be able to verify it.

The Parkonomics view

A GMP is a ceiling, not a price. Its value depends on how much design existed when it was set and on how clearly it lists what it excludes. For parking projects, the line items most often underspecified are technology and systems: PARCS, cameras, guidance and charging. Name them in the GMP, or price them as allowances you expect to reconcile.

Related terms: Construction Manager at Risk, Progressive Design-Build (PDB), Design-Build, Hard Construction Costs, Soft Construction Costs

Further reading: Procurement Is Still Buying the Past While Parking Has Moved On