How does a GMP contract work?
A guaranteed maximum price contract sets a ceiling on the owner's cost: the contractor is paid actual cost of the work plus a fee up to that ceiling, and absorbs any overrun above it. Savings below the cap are split under a shared savings clause, typically after owner and contractor contingency are closed.
What Is a Guaranteed Maximum Price (GMP) Contract?
A guaranteed maximum price contract is a cost-plus agreement with a ceiling written into it. The contractor is reimbursed for the actual cost of the work plus a fee, and the owner pays no more than the stated GMP unless the owner directs a change in scope. The ceiling is only as good as the documents behind it, which is why a GMP contract construction package usually lists the drawings, specifications and allowances it was priced against.
GMP work is typically delivered through construction manager at risk, where the CM holds the trade subcontracts and carries the overrun risk above the ceiling. The agreement family is familiar: AIA A133 establishes the cost-plus-fee relationship, and the GMP itself is set by amendment once design is far enough along to price. An open book GMP means the owner can see the cost of the work, the general conditions and the fee as separate line items rather than a single blended number.
GMP vs. cost-plus and lump-sum
Cost plus fixed fee pays actual costs plus a fixed fee with no ceiling, so every overrun lands on the owner. A lump-sum contract fixes the price at bid time and shifts quantity and price risk to the contractor, usually with a premium for that risk. A GMP sits between them: costs stay visible and auditable, but the owner's exposure stops at the ceiling. The trade-off is that the contractor prices the risk it is accepting, so the fee and contingency carry that load.
Who holds the risk under a GMP
Above the GMP, the contractor absorbs overruns caused by its own means, methods, buyout and coordination. Below the GMP, the owner typically keeps scope changes, owner-directed accelerations, differing site conditions and code changes issued after the GMP date. Read the qualifications page carefully: a GMP that excludes steel escalation or permits is not really a ceiling. Confirm which code editions the drawings were priced to with the building department before you sign.
What a GMP does and does not cover
A GMP covers the defined scope in the GMP documents, the general conditions for a stated duration, and the listed allowances at their stated values. It does not cover work added by change order, owner-furnished equipment, or costs from a schedule extension the owner caused. Anything left out of the qualifications is a scope gap that returns as a change order, so the estimate behind the GMP should be line-item and traceable. Our line-item construction cost estimating produces that basis before the GMP is set.
How a Guaranteed Maximum Price Is Built: Cost Components
The GMP number is a stack, not a single figure. Each layer needs a unit, a measurement rule and a source, so an owner or lender can trace any line back to a quantity and a rate. That is the practical difference in gmp vs cost plus: the cost-plus side is fully visible, and the ceiling is the sum of those visible parts plus contingency and fee.
The structure follows AIA A133 conventions: cost of the work, general conditions, contingency, then the contractor's fee. A shared savings clause gmp provision then decides who keeps any unspent contingency or buyout savings at closeout.
Direct costs, general conditions, and contingency
Direct costs are the trade packages: concrete by cubic yard, structural steel by ton, drywall by square foot of wall area, electrical by device and by linear foot of conduit. General conditions are time-based: supervision, temporary facilities, permits, cleanup and small tools, priced per month for the contract duration. Contingency is a stated percentage of the base, split between design contingency for unresolved details and construction contingency for field conditions.
Contractor fee and savings-sharing
The fee percentage is applied to a defined base, usually the cost of the work plus general conditions, and the base must be named in the agreement. Shared savings applies to what remains of the contingency and to buyout savings after subcontracts are awarded below the GMP values. The savings split is negotiated, commonly 50/50 or weighted to the owner, and it should state whether the contractor's fee applies to shared savings. Without a written split, the incentive to hold the ceiling disappears.
Allowances and qualifications
Allowances carry a stated dollar value for items not yet designed, such as tenant finishes, fire alarm devices or site utilities. Each allowance needs a quantity basis and a unit price so it can be reconciled at buyout rather than argued over. Qualifications list what the GMP excludes: escalation beyond a date, unforeseen rock, hazardous materials, and owner-driven schedule changes. Our construction management document review checks these documents against the estimate before the GMP is executed.
Worked Example: Assembling a Guaranteed Maximum Price
The example below is illustrative, not a market average. It prices a 10,000 sq ft single-story commercial shell with a stated scope, so every multiplication can be checked. In a real guaranteed maximum price contract, the same arithmetic would sit under each trade package with the drawing sheet and measurement rule cited.
The calculator below takes a base estimate and an AACE estimate class from 5 to 1 and returns a low and high contingency with the resulting budget range. Use it to test how the contingency allowance moves as design matures from Class 5 to Class 1.
| Line item | Quantity | Unit | Rate | Amount |
|---|---|---|---|---|
| Concrete slab-on-grade | 10,000 | sq ft | $9.50 | $95,000 |
| Earthwork cut and haul | 300 | cy | $45.00 | $13,500 |
| Roofing | 10,500 | sq ft | $7.25 | $76,125 |
| Exterior wall | 4,000 | sq ft | $32.00 | $128,000 |
| Electrical and plumbing | 1 | ls | $210,000 | $210,000 |
| General conditions | 12 | month | $18,500 | $222,000 |
| Contingency at 8% | 1 | ls | 8% | $59,570 |
| Fee at 6% | 1 | ls | 6% | $48,252 |
| Guaranteed maximum price | — | — | — | $852,447 |
Contingency range by estimate class
- Low contingency
- $150,000 (10%)
- High contingency
- $300,000 (20%)
- Budget range
- $1,650,000 – $1,800,000
Typical planning ranges that follow the AACE estimate-class idea: less design, more contingency. Set the final figure from a risk review of your own project.
Stated assumptions and quantities
Assumptions: 10,000 sq ft slab-on-grade, 4,000 sq ft of exterior wall, 12-month duration, no basement, no structural steel. Earthwork is 300 cubic yards of cut and haul. Roofing is 10,500 sq ft including typical waste. The rates are illustrative and held constant so the arithmetic is visible. An AIA A102-style lump sum would hide these quantities; a GMP keeps them open for audit.
Contingency, fee, and the GMP total
Design and construction contingency at 8% of $744,625 = $59,570. Subtotal before fee is $804,195. Contractor fee at 6% of that subtotal = $48,252. The guaranteed maximum price is $852,447. Any change order for owner-directed scope is added above that ceiling. A contingency drawdown schedule, tracked against the schedule of values line items, shows how much remains each month.
What Drives the Price Under a Guaranteed Maximum Price?
A guaranteed maximum price is only as firm as the documents behind it. The number sits in Division 01 general conditions, the trade lines in Divisions 03 through 33, and a contingency line that absorbs what the drawings did not settle. An estimator reads a GMP the way a lender reads a pro forma: every line has a source, and every source has a date.
Read the three drivers below against your own proposal. Each one maps to a named line, so you can see where risk sits before you sign an AIA GMP amendment that converts a cost of the work into a ceiling.
Scope definition and design completeness
A line priced from 60% drawings carries more risk than the same line priced from stamped, coordinated sheets. Division 08 hollow metal frames, Division 09 gypsum board assemblies, and Division 26 raceway runs are common gap sites: the drawings show a device, the spec names a manufacturer, and the quantity depends on a reflected ceiling plan that is not finished. Each unresolved item becomes an allowance or an owner contingency line rather than a firm number.
Ask how does a gmp contract work when the design is incomplete, and the answer is that the gap is priced twice: once as an allowance and again as a change when the scope firms up. A complete set of construction documents at bid time narrows that gap and makes the ceiling defensible.
Market and material volatility
Material movement hits specific lines, not the whole budget. Lumber and wood products and steel mill products have both moved sharply in the past year, so Division 06 millwork, Division 05 structural steel, and Division 08 doors and frames carry more escalation risk than Division 03 cast-in-place concrete, where ready-mix has been steadier. Copper wire and cable has moved hardest of all, which puts Division 26 feeders and branch wiring in the same category.
A GMP that fixes material prices for twelve months without an escalation clause transfers that risk to the contractor; one that carries a stated escalation allowance shares it. Either way, the allowance needs a basis: an index, a quote date, and a named commodity.
Schedule, site conditions, and labor
Compressed schedules raise labor cost through overtime, shift premiums, and stacking of trades in the same zone. Site access drives Division 31 earthwork and Division 02 demolition quantities when haul routes, shoring, or dewatering are constrained. A tight urban lot with no laydown area pushes material handling into general conditions, where a tower crane or hoist line appears.
Labor availability shows up as a crew-loading assumption in each trade line. A GMP built on eight carpenters finishing Division 06 in three weeks fails if the market cannot supply them, and the recovery is a change order. Estimators who price labor from published wage data and a stated productivity rate can defend the number; those who price from a lump-sum guess cannot. Our construction cost estimates carry the unit, the rule, and the data source on every line, and our buyout and change review support keeps the same traceability from subcontract award through change orders.
GMP Risk Allocation: Contingency, Savings, and Change Orders
The contract language controls who pays when the number moves. A cost plus GMP agreement allocates risk through three instruments: contingency, a savings-sharing clause, and a change-order procedure. Read all three together, because a generous savings split means little if the contractor can draw the contingency down without your approval.
Owner vs. contractor contingency
Two contingency lines usually appear. The contractor contingency covers scope the contractor should have caught: a missed Division 23 duct run, a Division 09 wall type counted short, a subcontractor bid that excluded firestopping. The owner contingency covers scope you have not decided: a tenant fit-out, a furniture package, a future Division 14 elevator. Drawdown rights differ, and the contract should say who approves each draw and what documentation supports it.
Unused contractor contingency is the most contested line in a GMP closeout. Some agreements return it to the owner; others let the contractor keep it as compensation for carrying the ceiling risk. Confirm the treatment in writing before the first pay application.
Savings-sharing formulas
Buyout savings arise when subcontractor bids come in under the GMP line. A common formula splits savings after the contractor fee is applied and after any owner-directed scope is removed. Illustrative example: a Division 23 mechanical line is carried at $480,000 in the GMP and buys out at $452,000, a $28,000 saving. With a 50/50 split, the owner receives $14,000 and the contractor $14,000. If the fee is 6% and the contract applies it to the bought-out value, the fee reduction is $1,680, and the split applies to the remaining $26,320, giving $13,160 to each side.
State the order of operations in the shared savings clause gmp language: fee first or split first, and whether the split applies before or after contingency reconciliation. A one-page formula beats a paragraph of intent.
Changes and GMP amendments
A change order modifies the work; a GMP amendment modifies the ceiling. Owner-directed additions, code-driven revisions, and differing site conditions each need a priced change directive before the work proceeds, and each should carry a unit price basis so the number is auditable. Where a change is priced from a subcontractor quote, attach the quote.
Buyout savings do not raise the GMP, and change orders do not lower it unless the contract says so. Keep the schedule of values current so each approved change lands on a specific line rather than in a lump at the bottom. Our GMP schedule of values preparation ties each line to the GMP and to the pay application.
How to Review a GMP Proposal: A Traceability Checklist
An open book GMP lets you audit the number, but only if you ask for the right documents. Request the trade-by-trade takeoff, the subcontractor bid tabulations, the general conditions build-up, and the fee calculation. A proposal that shows only a total and a percentage is a lump sum with extra steps.
Use the calculator below as a sanity check on the bottom line. Enter your building area, your own base hard cost per square foot, and your soft-cost, contingency, and escalation percentages; it returns hard cost, soft costs, contingency, escalation, budget total, and all-in cost per square foot. Compare that all-in figure to the GMP total divided by gross area. A gap of more than a few percent means one of the two numbers is missing scope.
| Check | Document to request | Failure mode if missing |
|---|---|---|
| Trade quantities | Line-item takeoff tied to drawing sheets | Allowance substituted for a measured quantity |
| Unit rates | Subcontractor bid or wage-and-material build-up | Placeholder rate that becomes a change order |
| General conditions | Staffing plan with hours by role | Double-counted supervision inside trade lines |
| Fee calculation | Fee base stated in the contract | Fee applied to contingency or to itself |
| Contingency | Separate owner and contractor lines | Combined line with unclear drawdown authority |
| Exclusions | Written list by CSI division | Unpriced scope that returns as a change order |
| Allowances | Stated value and defined scope | Open-ended allowance settled at closeout |
Square-foot budget calculator
- Hard cost
- $444,000
- Soft costs
- $53,280
- Contingency
- $49,728
- Escalation
- $21,880
- Budget total
- $568,888
- All-in per sq ft
- $237
Enter your own base rate from a recent bid, cost book or estimator. The default values are placeholders for the math, not market prices.
Verify quantities and unit rates
Take the largest ten trade lines and trace each quantity back to a drawing. Division 03 concrete should show cubic yards by element, not a single allowance. Division 09 drywall should show square feet by board type and level of finish. Division 26 should show device counts and feeder lengths. If a quantity cannot be traced, ask for the measurement rule used.
Every unit rate needs a basis: a subcontractor bid, a published wage and material build-up, or a documented historical rate. A rate with no basis is a placeholder, and placeholders become change orders.
Check contingency and fee math
Recompute the percentages yourself. Confirm the fee is applied to the cost of the work and not to the contingency, or the reverse, exactly as the contract states. Confirm the bond and insurance line is calculated on the contract value and not double-counted inside general conditions. Confirm retainage is applied consistently across lines.
Check that the contractor contingency and owner contingency are separate lines with separate drawdown authority. A single combined contingency line hides who controls the money.
Confirm exclusions and allowances
Read the exclusions list line by line. Common exclusions include hazardous material abatement, rock excavation, winter conditions, permits and impact fees, and owner-furnished equipment. Each exclusion is a future change order, so price the likely ones into your own budget before you compare proposals.
List every allowance with its stated value and its scope. An allowance for Division 08 hardware at a stated figure is defensible; an allowance described only as "to be determined" is not. For a broader read on comparing competing proposals, see our guide to bid leveling. Our construction management team can review a GMP proposal against the drawings before you sign. To have a traceable estimate built for your project, send your plans.
GMP vs. Other Delivery Methods: When to Use It
A GMP sits between a hard lump sum and open-ended cost reimbursement. The owner pays actual cost of the work plus a fixed fee, and the contractor caps the total; anything above the cap is the contractor's exposure. That single cap is what separates a GMP contract from the other two methods, and it is the reason the owner must keep the scope and the cost of the work auditable from day one.
The table below compares the three on the terms an owner actually negotiates. Read it against your own drawings: if the documents are not far enough along to price a lump sum, a GMP with an open-book buyout is the usual answer. If the scope is a concept sketch, none of these methods will save you.
| Method | Who carries overrun risk | Price certainty at signing | Owner flexibility after award | Best fit |
|---|---|---|---|---|
| Lump sum (design-bid-build) | Contractor, within the bid scope | High, once bids are leveled | Low; changes are negotiated change orders | Complete, bid-ready documents with a fixed program |
| Cost plus fixed fee | Owner | Low; final cost unknown at award | High; owner approves each commitment | Owners with audit staff and fast-moving scope |
| Cost plus with GMP | Contractor above the cap, owner below it | High at the GMP milestone | Moderate; changes priced against the GMP baseline | Design 60–90 percent complete, owner wants collaboration |
| GMP with shared savings | Contractor above the cap; savings split by clause | High at the GMP milestone | Moderate; savings split rewards buyout discipline | Owners who want buyout savings returned |
| Design-build with GMP | Design-builder above the cap | Moderate to high, set at design milestone | Low after the GMP amendment | Single-point responsibility with a hard cap |
GMP vs. lump-sum and cost-plus
A lump-sum contract fixes the price at bid time and transfers nearly all quantity risk to the contractor; the trade-off is that every later change is a negotiation, and a scope gap in the documents becomes a change order. Open-ended cost plus passes the overrun to the owner, which is workable only when the owner has staff to audit invoices and approve each commitment. A GMP keeps the reimbursable structure of cost plus but adds the cap, so the owner gets price certainty without giving up visibility into the cost of the work.
The mechanics differ again at buyout. Under a lump sum, savings from a favorable subcontractor bid stay with the contractor. Under a GMP, the shared savings clause decides who keeps buyout savings and in what split, which is why the clause is negotiated before the fee percentage. Our cost plus vs fixed price comparison covers the fee mechanics in more detail.
GMP with design-build or CM at risk
Most U.S. GMPs are written on a construction manager at risk or design-build basis, using the AIA A133 or A102 family with a GMP amendment. The contractor joins during design, prices the documents at a defined milestone, and the GMP is set once the owner accepts the basis of design. Value engineering happens before that milestone, when a system change still moves the cap; after it, the same change is a change order.
This is where a GMP contract example usually goes wrong. The GMP is signed against a drawing set that is 60 or 70 percent complete, allowances cover the unfinished interiors, and the contractor's contingency is sized for the unknowns left in that set. If the owner then adds scope that was never in the basis of design, the cap does not protect them. A traceable construction cost estimate at the GMP milestone gives both sides a line-item baseline to measure changes against.
Limits of a GMP
A GMP does not fit every project. At concept level, with no floor plans or a program still in flux, the contingency needed to make the cap credible is large enough that the number means little. On scopes with volatile material content, the cap can be overtaken by published price movement before buyout closes. The Producer Price Index series we track shows how uneven that movement is across lumber, ready-mix, steel mill products and copper wire and cable, so a GMP on a steel- or copper-heavy scope needs either a firm bid in hand or a clearly written price-adjustment clause.
A GMP also fails when the owner treats the cap as a ceiling with no audit rights. Without open-book review of subcontractor bids, the fee percentage and general conditions become unverifiable, and the shared savings clause turns into an argument. Pair the GMP with CM-at-risk bid leveling and cost audit support, or keep the scope on a lump-sum basis until the drawings are ready to price.
Frequently Asked Questions
What is a guaranteed maximum price in construction?
A guaranteed maximum price is a ceiling on the cost of the work plus the contractor's fee, set before construction starts and adjusted only through written change orders. The contractor builds the number from subcontractor bids, general conditions, contingency and fee, then absorbs any overrun above the ceiling. The owner sees the open-book backup for every line.
How does a GMP contract differ from cost-plus?
A cost-plus contract pays actual cost plus a fee with no ceiling, so the owner carries all overrun risk. A GMP contract keeps the open-book accounting of cost-plus but caps the total, shifting overrun risk to the contractor above the guaranteed maximum price. Cost-plus with a guaranteed maximum is the common form, often documented through an AIA A133 or A102 with a GMP amendment.
Who keeps the savings under a GMP contract?
It depends on the shared savings clause. Many GMP contracts return savings to the owner, some split them between owner and contractor, and some let the contractor keep buyout savings below the ceiling. The clause should state the split percentage, when savings are measured, and whether savings are calculated at buyout or at final completion.
What happens if costs exceed the guaranteed maximum price?
The contractor covers costs above the ceiling unless the overrun comes from an owner-directed change, a differing site condition, or a documented allowance or contingency item the contract assigns to the owner. Read the clause on cost overrun carefully: it should name which events reopen the GMP and which the contractor absorbs.
Is a GMP the same as a lump-sum contract?
No. A lump-sum contract fixes a price for defined scope, and the contractor keeps any savings silently. A GMP contract is open book: the owner sees direct cost, indirect cost, contingency and fee, and unused contingency or buyout savings may be returned under the shared savings clause.
What should be included in a GMP proposal?
A complete GMP proposal lists the cost of the work by CSI division with quantities and unit prices, general conditions by month, bond and insurance, contingency with a drawdown rule, the fee percentage, allowances, assumptions and exclusions, the schedule basis, and the shared savings terms. Ask for the subcontractor bid tabulation behind each division total.
How is the contingency allowance set in a GMP contract?
Contingency is sized to the design completeness and the estimate class, not to a habit. Early-design GMPs carry more owner contingency for scope not yet drawn and contractor contingency for buyout and coordination risk. The contract should state who draws on each, for what, and how unused amounts are credited back.
Can you review a GMP proposal or build the estimate behind it?
Yes. Send the drawings, the GMP proposal and any subcontractor bid tabulations, and we return a line-by-line takeoff with quantities, units and measurement rules so each division total can be traced to the documents. The fee is quoted per project after plan review, and the estimate arrives as an Excel workbook with a PDF summary and marked-up drawings.