Agreement On Maximum Price
Many customers want the lowest offer available for a construction or renovation project. Others are interested in the value that will be received for the money invested. Still others want to reduce their financial risks by improving their conditions. Each of these construction price approaches can be valid and lead to different business strategies. The desire to reduce risk can lead a customer to push for a guaranteed maximum price contract (GMP). However, a guaranteed maximum price is not a panacea and the price is not necessarily set. For example, if the customer asks for « extras » when the volume of work increases, the contract must provide for an increase in the price. If the work is omitted, the price should also be lowered. In its basic form, a guaranteed maximum price or GMP indicates that a customer pays you, to you, the contractor, the work costs plus an agreed profit for you up to a predetermined maximum. They then have to deal with cost overruns (« eating »), but maintenance costs are reimbursed to the customer. No wonder customers find the idea of a GMP attractive.
What does this mean for contractors? While a simple green prairie project may be suitable for a maximum guaranteed price, work on existing, old or complex properties with inherent uncertainty (particularly with respect to ground work) may not be appropriate. In order to assess these risks, it is necessary to ensure that appropriate investigations are carried out and that appropriate risk allocation is carried out. It is also important to ensure that the client`s requirements have been clearly defined in order to avoid possible disputes over the nature of the work. A guaranteed maximum price is no excuse to jump into the unknown and hope for the best. This type of contract transfers the risks associated with the delivery of the project from the customer to the contractor. For example, if events such as unusually adverse weather conditions or strikes occur or if objects that would otherwise have been subject to provisional amounts (. B, for example, complex work whose nature can only be determined after the ground has been opened) that could have led to losses and costs for other types of contracts, is the responsibility of the holder of a potential additional cost for a guaranteed ceiling price contract. Some employers feel that the price is set under a flat-rate contract and will never change. This view is clearly misunderstood. For example, no contractor will agree to bear the risk of increased costs as a result of the changes requested by the employer, even if the employer has actively impeded the progress of the work for no good reason.
Unfortunately, my answer was « no. » The concept of a guaranteed maximum price (GMP) is in practice a kind of myth. The term « GMP » means different things to different people, and different types of arrangement are often called bulk GMP. There is no one-size-fits-all definition, which can lead to confusion and waste of time and money if the parties have not discussed the details and later discover that they have understood the term as different things.