How Does a Guaranteed Maximum Price Work

A guaranteed maximum price contract sets a limit, or maximum price, that the customer will have to pay their contractor or subcontractor, regardless of the actual costs incurred. In its simplest form, a guaranteed maximum price contract simply puts a cap on the contract price that can’t be exceeded.

What are some possible disadvantages of guaranteed maximum price?

Disadvantages to the contractor : He may miscalculate the costs and may have to bear losses in the event of cost overruns. Due to the possibility of losses, the contractor may quote the higher price for the job and may lose the contract in competitive bidding.

What is a GMP allowance?

Allowances are typically used to cover the scope of items where the extent of the work is not known at the time the guaranteed maximum price (GMP) is submitted.