What is Guaranteed Maximum Price (GMP) ?
Definition of Guaranteed Maximum Price (GMP) in Construction
A contractual agreement, that specifically identifies a maximum cost for a project being proposed.
Normally the cost is based on time and material , with a not to exceed guaranteed maximum price. In many instances a GMP is the final result of an intensive and lengthy period of time during which the project was designed, priced, value engineered, designed again, etc. etc. The development of a GMP will normally involve specific subcontractors that will devote their time and experience in the creation of the GMP . A GMP is a well established method that is used to enter a contract agreement by ensuring the owner that only actual costs will be funded, and there is a maximum value for the project as it is initially presented. Of course the GMP cannot foresee the future and inevitably there are change orders, design errors, owner’s change in direction, etc. that will influence the final GMP value. A GMP is not without change orders, however, it is a better contractual agreement than a time and material agreement without the guaranteed value.