What Is a Guaranteed Maximum Price (GMP)?
A guaranteed maximum price (GMP) is a contract arrangement in which the contractor agrees to a ceiling price for the project — the client will not pay more than that figure, even if actual costs run higher. Costs are usually tracked on an open-book basis up to the cap, and if the final cost comes in under the GMP, the savings are typically shared between the client and contractor under an agreed formula. If costs exceed the GMP, the contractor generally absorbs the difference, aside from approved variations to the scope.
Key takeaways
- A guaranteed maximum price (GMP) sets a ceiling the project’s cost will not exceed, with actual costs tracked openly against that cap.
- Savings below the GMP are typically shared between client and contractor under an agreed formula, often around 50/50, while overruns are usually absorbed by the contractor.
- A GMP sits between a lump sum (fixed price, contractor keeps all risk and all savings) and cost-plus (no cap, client carries the cost risk).
- GMP contracts suit complex, fast-tracked or partly-documented projects, where a lump sum cannot yet be priced accurately but the client still wants cost certainty.
- Setting a realistic GMP depends on a properly measured, priced cost base with adequate contingency — an underpriced ceiling shifts real risk back onto the contractor.
What is a guaranteed maximum price?
A guaranteed maximum price is a contract structure in which the contractor commits to a cost ceiling the client will not be asked to pay above, regardless of what the work actually ends up costing. Underneath that ceiling, the contract usually runs on an open-book, cost-reimbursable basis: the contractor is paid actual costs plus a fee, with the GMP acting as a cap on the client’s exposure rather than a fixed price for the job.
GMP arrangements are most common on larger commercial projects, and increasingly on complex residential work, where the design is not fully locked down when pricing needs to happen — the client and contractor set a maximum based on the best information available, with contingency built in for what is not yet fully designed.
In plain terms
A GMP is a price with a lid on it — the client knows the absolute most they will pay, while the contractor still has to show its actual costs rather than simply quoting a flat figure.
GMP vs lump sum vs cost-plus
Guaranteed maximum price sits between two more familiar pricing models. The difference comes down to who carries the risk of the final cost, and who benefits if it comes in low.
| Contract type | Price certainty for client | Who carries overrun risk | Who benefits from savings |
|---|---|---|---|
| Lump sum | Fixed price agreed upfront | Contractor | Contractor keeps all savings |
| Cost-plus | No cap — client pays actual cost plus fee | Client | Does not really apply |
| Guaranteed maximum price | Capped — cannot exceed the GMP | Contractor, above the cap | Typically shared |
Setting a realistic GMP with My Trade Hub
A guaranteed maximum price is only as safe as the cost base underneath it — set the ceiling too low and the contractor wears the overrun; set it too high and the tender is uncompetitive. My Trade Hub’s automated quantity takeoff measures the scope from uploaded plans, and applies your own editable rates library across labour, material and plant, so the estimate behind a GMP is built from real measured quantities rather than a rushed allowance.
Because every rate stays editable, you can layer in a considered contingency for the parts of the design not yet locked down, and produce a priced Bill of Quantities that supports the ceiling you are proposing — helping you put together a complete, defensible GMP tender 60-75% faster than pricing it by hand.
Frequently asked questions
What does GMP mean in a construction contract?
GMP stands for guaranteed maximum price — a contract in which the contractor sets a ceiling price the client will not have to pay above, with actual costs tracked openly up to that cap.
How are savings split under a guaranteed maximum price contract?
If the verified final cost comes in under the GMP, the savings are typically shared between the client and contractor under a ratio set out in the contract, commonly around 50/50, though the exact split varies by agreement.
What happens if the actual cost goes over the guaranteed maximum price?
The contractor generally absorbs costs above the GMP, provided the overrun relates to the original scope rather than an approved variation — the core protection the arrangement gives the client.
Is a GMP the same as a fixed-price or lump-sum contract?
No. A lump sum is a single fixed price the contractor commits to regardless of actual cost. A GMP tracks actual, open-book costs up to a ceiling, so the client sees real costs rather than just a flat figure, while still having a cap.
Does the GMP include contingency for unknowns?
Yes, typically. A contingency allowance for unforeseen items is usually built into the guaranteed maximum price itself, rather than treated as an extra the client pays on top.
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