A Guaranteed Maximum Price contract pays the contractor its actual cost of the work plus a fee, but only up to a stated maximum. Costs above the GMP (outside approved changes) are the contractor’s problem. Costs below it are often split between owner and contractor through a shared savings clause, or returned to the owner. GMP is the usual pricing model for CM at risk.
Why it matters
GMP jobs are open-book. The owner can audit your costs, so job cost coding, commitments and backup have to be clean. And because overruns hit your fee first, you need an honest forecast of cost-to-complete against the cap every month.
Worked example
Illustrative: Riverside Medical Center’s contract is $48.2M with $1.1M in approved COs, so the adjusted ceiling is $49.3M. If estimate at completion rises to $49.6M with no change order to cover it, the contractor eats $300,000, reducing fee. If the job finishes at $48.8M and savings are split 50/50, the contractor keeps $250,000 of the $500,000 underrun.
Common mistakes
- Billing costs the contract defines as non-reimbursable (often home-office overhead or certain equipment).
- Burning contractor contingency without documenting why.
- Not tracking the GMP ceiling separately from the cost forecast.
How os.construction handles it
We’re building GMP tracking where every cost, commitment and contingency draw rolls into a single forecast against the ceiling, with backup attached for owner audits. It’s in development with founding contractors.