Jump to Section
What is a GMP Contract?
A guaranteed maximum price contract is a type of contract with a hard cap on the costs that the customer will pay for a project, regardless of what happens during the contract.
This limits what the customer will pay their contractor or subcontractor. It also changes the way contractors calculate their prices for the project because they will need to take all possibilities into account when they are generating a quote or a bid.
Here is an article to learn more about GMP contracts.
How Does a GMP Contract Work?
When you decide to use a GMP contract for your project, you will need to spend much time defining the scope and specification for the work. In addition, you will probably need to compile a schedule of values for the project, which is a list of all the items and unit rates anticipated.
Not only does this help to ensure contractors who bid on the project can base their pricing on an accurate takeoff, but it also helps ensure that all contractors are bidding on the same things. When you use a guaranteed maximum price contract, you do need to ensure that you are comparing apples with apples!
Here is an article to learn more about a schedule of values.
What Should Be Included in a GMP Contract?
There are several things that your guaranteed maximum price contract should include, aside from the schedule of values. That is to ensure that even though the contract limits the total project value, it is fair to the contractors who bid and those to whom the project is ultimately awarded.
Usually, guaranteed maximum price contracts will include the following:
- A predetermined contingency. The amount that will be used to pay for actual costs incurred that could not conceivably have been anticipated during the bidding process.
- Allowances. Estimated figures are included in the contract to cover items the customer knows will be required but cannot be quantified before the work begins. All contractors will consist of these amounts in their bid. Payments will be drawn from the allowed amount.
- Change order procedures. Even when you have a guaranteed maximum price contract, if you deviate from the original specification or scope, you will need to issue a change order for the difference between what was initially specified and the new requirement.
- Terms. General and specific contract terms that set out all the processes, procedures, and time limits involved in managing the project.
- Protective Agreements and Clauses. Most GMP contracts will also include a hold harmless agreement, a termination clause, and a liquidated damages clause.
- Liens. Most construction contracts also set out when and how a contractor may be able to lien the project.
- Warranties. The GMP contract should include information about any warranties required by the customer.
Many of these special inclusions in a guaranteed maximum price contract are designed to give the customer some flexibility when reimbursing actual costs incurred and the contractor to request additional payment for costs they genuinely could not have estimated when bidding.
Benefits of a GMP Contract
The main benefit of a guaranteed maximum price contract for the customer is that it sets a cap on what they will need to pay their contractor or subcontractor.
This makes it easier to budget for the project and, if sufficient contingencies and allowances are built in, should represent the final and total amount the customer will pay for the job, regardless of what happens.
Image via Pexels by Mikhail Nilov
What Are Potential Issues with a GMP Contract?
The biggest potential hurdle for customers who want to use a GMP contract is that they will need to spend a considerable amount of time making sure that their takeoffs are accurate, their scope of work is complete and comprehensive, and all the information that could affect a contractor’s price is included clearly in the contract documents.
Unlike a design-build contract, where contractors price based on their own specifications and solutions, when you use a guaranteed maximum price contract, it is your responsibility as the customer to provide the design and all other information required to quote.
Since contractors will also be assuming a lot of the financial responsibility and risk when they bid on a GMP contract project, they are likely to inflate rates and markups so that they can build in a financial cushion that will help to cover smaller unknowns for the project, which means that their prices will typically be higher than they would with other types of contracts.
GMP Contracts vs. Lump Sum Contract
A GMP contract is similar to a lump sum contract in that both focus on the price at the bottom of the contractor’s quote.
However, lump sum contracts usually don’t include a schedule of values, and there is no hard cap on the final price that the contract will be. Contractors still must base their prices on the specification and scope provided by the contractor.
Still, suppose there are additional costs related to previously unknown issues. In that case, the contractor can apply for change orders and cost increases regardless of whether contingencies or allowances are included in the contract.
GMP Contracts vs. Cost-Plus Contracts
Unlike a guaranteed maximum price contract where the goal is to put a cap on the total amount the project will cost the customer, a cost plus contract has no maximum value. Instead, the customer will pay their contractor or subcontractor based on their incurred costs, plus an approved markup.
This means that when you have a cost-plus contract, your contractor will usually be required to submit detailed information about things such as:
- Man-hours worked
- Equipment costs (whether owned or rented)
- Material invoices from suppliers
They will also pass any costs to transport materials and equipment to the work site on to the customer, along with any other justifiable cost associated with the project.
While the customer on a cost-plus contract might have a budget in mind when they begin the job, there is no way to be sure what the final price for the project will be.
What Kind of Project Should You Consider a GMP Contract for?
GMP contracts are usually used for large, expensive projects. They are not traditionally used for smaller projects like a renovation contract or a roofing contract, particularly where the customer does not have the expertise to develop a detailed specification and scope of work.
It is simply not worth the time and effort required to compile detailed project data to create a GMP contract if the project value and anticipated contract price do not warrant it.
Suppose you do feel that a GMP contract might work for your project. In that case, it’s worth consulting a construction lawyer to ensure that you create a fair, accurate, and enforceable contract.
You will also need to engage the services of construction professionals like architects and quantity surveyors to ensure that your project information is as accurate and comprehensive as possible.
Post a project in ContractsCounsel’s marketplace to receive flat fee bids from lawyers for your project. All lawyers have been vetted by our team and peer-reviewed by our customers for you to explore before hiring.
Meet some of our GMP Contract Lawyers
Linda W.
o Experience includes meeting with clients, numerous court appearances and mediations concluded with successful settlements. Exceptional communication skills both oral and written. Available to travel…. Flexible schedule. A general practice with emphasis in contracts of any nature, landlord/tenant/ real estate, leases, prenuptial and antenuptial agreements, wills and trusts, collections, business..... * In addition, Florida Real Estate License with extensive experience in this area as well. • o Skills: Legal Matters · Legal Practice · Interpersonal Skills · Employment Contracts · Time Management · Mediation · Legal Document Preparation · Commercial Contracts · Writing · Dispute Resolution · Attention to Detail · Real Estate · Contract Negotiation · Due Diligence · Breach of Contract · Analytical Skills
Kamaria W.
Attorney Kamaria Womack graduated magna cum laude from Atlanta's John Marshall in May 2018 and became a member of the State Bar of Georgia in November of the same year. Attorney Womack, known as "the Contract Queen" started her own firm that focuses on assisting small businesses and entrepreneurs because she saw the increase of the desire of people to be self-employed but not the legal knowledge to ensure sustainability and success. Over the years Attorney Womack has drafted, reviewed, negotiated, and litigated a variety of contracts ranging from commercial leases, partnership agreements, employment agreements, and services agreements and much more.
Frank V.
Navy veteran with 14 years experience practicing law in Chicago.
August 15, 2023
Daniel W.
I am an experienced New York Attorney pleased to offer my services to clients who are seeking assistance with startup consulting and/or business related legal work. My expertise in both of these areas allows me to provide comprehensive legal support to entrepreneurs and businesses of all sizes.
August 16, 2023
Ashley M.
Trial attorney. Specializing in drafting and arguing complex criminal pretrial and contemporaneous motions. Former Public Defender. Cum Laude graduate of the University of Miami School of Law. Research assistant for multiple professors in the areas of Title IX defense, post-conviction litigation, reproductive healthcare rights, and the constitutionality of affirmative defenses. Trial Team Captain, Pro-Bono Challenge award recipient, Litigation Skills Book Award and Scholarship recipient, HOPE Public Interest Scholarship recipient. Cum Laude graduate of New York University with a focus on classical theatre text and performance.
August 18, 2023
Nicole G.
Legal and compliance professional with expertise in commercial transactions, government contracting, corporate governance, and nonprofits.
August 18, 2023
Michael D.
Primary areas of expertise are in providing solutions to folks in financial distress. Best suited for those tasks where out-of-the-box performance is expected and needed.
Find the best lawyer for your project
Browse Lawyers NowHow It Works
Business lawyers by top cities
- Austin Business Lawyers
- Boston Business Lawyers
- Chicago Business Lawyers
- Dallas Business Lawyers
- Denver Business Lawyers
- Houston Business Lawyers
- Los Angeles Business Lawyers
- New York Business Lawyers
- Phoenix Business Lawyers
- San Diego Business Lawyers
- Tampa Business Lawyers
GMP Contract lawyers by city
- Austin GMP Contract Lawyers
- Boston GMP Contract Lawyers
- Chicago GMP Contract Lawyers
- Dallas GMP Contract Lawyers
- Denver GMP Contract Lawyers
- Houston GMP Contract Lawyers
- Los Angeles GMP Contract Lawyers
- New York GMP Contract Lawyers
- Phoenix GMP Contract Lawyers
- San Diego GMP Contract Lawyers
- Tampa GMP Contract Lawyers
related contracts
- Accounts Receivable Purchase Contract
- Affiliate Agreement
- Bill of Sale
- Boat Purchase Agreement
- Brand Ambassador Contract
- Business Proposal
- Commission Agreement
- Consignment Agreement
- Contract for Purchase
- Distribution Agreement
other helpful articles
- How much does it cost to draft a contract?
- Do Contract Lawyers Use Templates?
- How do Contract Lawyers charge?
- Business Contract Lawyers: How Can They Help?
- What to look for when hiring a lawyer
Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.
View Trustpilot ReviewContracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.
View Trustpilot ReviewI never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.
View Trustpilot ReviewI got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.
View Trustpilot Review