What is a Guaranteed Maximum Price (GMP)?

A Guaranteed Maximum Price (GMP) is a financial cap put in place during construction contracts. This is the highest possible price that a client can expect to pay for a particular project, providing a semblance of financial predictability and safety. The GMP includes the cost of raw materials, labor, indirect costs, and a margin for the contractor's profit. If the project comes in under the GMP, often the savings are shared between the client and contractor. Conversely, if costs exceed the GMP, it's typically the contractor who bears the extra expense, unless the client has requested changes. This method helps manage risks, keep projects within budget, and fosters transparency between clients and contractors in the construction industry.