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Construction glossary · Process and contract terms

What is a guaranteed maximum price (GMP) in construction?

A guaranteed maximum price (GMP) is a contractual cap on what the owner pays the contractor for a defined scope of work, covering the cost of the work plus the contractor's fee. If actual costs finish below the cap, the savings go back to the owner or get divided under a shared savings clause. If costs run over, the contractor absorbs the overrun unless an approved change order raised the cap.

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Updated September 2026 · Reviewed by the Ruh construction team

GMP = guaranteed maximum priceOverruns on the contractorSavings often shared with owner

GMP caps cost; savings can be shared

Cost of work + fee under capOwner buffer contingencyContractor guarantees a not-to-exceed price
The definition

GMP (guaranteed maximum price), explained.

A GMP shows up most often on CM at risk and design-build work, usually written as a GMP amendment to an AIA A133 or similar agreement. The contractor builds the number open book: cost of work from the takeoff, general conditions, contractor contingency, and a stated fee, all itemized in a schedule of values that pay applications later bill against. Estimators usually set the GMP from incomplete documents, often 60% to 90% construction documents, which is why the qualifications, assumptions, and allowances pages carry as much weight as the numbers themselves. New estimators make two common mistakes. First, they treat a GMP like a lump sum and skip the scope narrative; on an open book contract the owner will audit costs, and vague qualifications turn document gaps into contractor losses. Second, they confuse contingency with scope growth: contractor contingency inside the GMP covers estimating misses and buyout shortfalls, not owner changes, which go through change orders that raise the cap.

Public-sector practice codifies the same build-up: GSA defines the guaranteed maximum price as the estimated cost of the work plus a contingency allowance plus the fee for construction work (GSAM 536.7105-2).

How it is measured

A GMP is a single dollar figure stated in the contract or GMP amendment, supported by a line-item schedule of values. Estimators build it bottom up: quantity takeoff priced at real unit costs, plus subcontractor bids or budgets for unbought trades, plus general conditions (illustratively $40,000 to $80,000 per month on a mid-size US commercial job), plus contractor contingency (an illustrative 2% to 3% of cost of work), plus fee (an illustrative 3% to 5%). During construction, the team measures performance against the GMP through monthly pay applications and a cost report that compares committed and projected costs to each schedule of values line. The number that matters at closeout is final audited cost of work plus fee versus the cap.

How does a GMP contract work?

A GMP contract is cost reimbursable up to a ceiling. The owner pays the contractor for the actual cost of the work plus an agreed fee, and the contract names a single number the total cannot exceed. Everything under that number is billed as it is incurred and open to audit; everything above it stops being the owner's exposure.

Three components build the guaranteed maximum price: the estimated cost of the work, a contractor-controlled contingency, and the fee. The contingency sits inside the cap and covers the contractor's own estimating and buyout misses, not owner-directed scope growth, which goes through change orders that formally raise the GMP.

The two closeout outcomes are deliberately asymmetric, and that asymmetry is the point of the contract. If audited cost plus fee lands under the cap, the underrun returns to the owner or splits under a shared savings clause at the percentage the contract names. If it lands over, the contractor absorbs the overrun and earns no additional compensation.

Federal construction practice writes the same structure explicitly: GSA's construction-manager-as-constructor clause assembles the GMP from the estimated cost of the work, a contingency allowance, and the fee, provides that final settlement cannot exceed the ceiling, and shares savings below it at a stated percentage (GSAM 552.236-79).

Is a GMP contract a standard AIA form?

Usually, yes. A GMP is normally executed on a published industry agreement rather than drafted from scratch. The American Institute of Architects issues owner-contractor agreements whose stated basis of payment is the cost of the work plus a fee with a guaranteed maximum price, alongside a construction-manager-as-constructor agreement used when the GMP is set once design has developed far enough to price.

The form matters to the estimator because it decides what the number has to survive: an open-book cost basis, owner audit rights, and a schedule of values that pay applications bill against. The A133 amendment this page's example follows is the CM-at-risk version of exactly that arrangement.

The publisher's own guidance walks through which document carries the GMP and when it is established (AIA Contract Documents).

Worked example

A guaranteed maximum price example: the $5M math

Say a CM at risk contractor signs a GMP amendment at $5,000,000 with an 80/20 shared savings clause (80% to the owner, 20% to the contractor). At closeout, the audited cost of work plus fee totals $4,700,000. Savings: $5,000,000 minus $4,700,000 = $300,000. Owner's share: $300,000 x 0.80 = $240,000. Contractor's share: $300,000 x 0.20 = $60,000. The owner's final cost lands at $4,700,000 + $60,000 = $4,760,000, which is $240,000 under the cap. Now flip it: if the cost of work had finished at $5,200,000, the contractor would absorb the $200,000 overrun, because the GMP caps the owner's exposure. That asymmetry is exactly why the takeoff, contingency, and qualifications have to be right before the GMP is signed.

How Ruh handles it

How Ruh handles GMP (guaranteed maximum price).

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GMP (guaranteed maximum price): frequently asked questions

What is the difference between a GMP and a lump sum contract?+

A lump sum is a closed book fixed price: the contractor keeps every dollar of savings and gives the owner no view into actual costs. A GMP is open book and cost reimbursable up to the cap, the owner typically holds audit rights, and underruns flow back to the owner in whole or in part. Lump sum bidding usually needs complete documents, while a GMP is commonly set earlier in design, with contingency and written qualifications covering the gaps.

What is a typical shared savings split in a GMP contract?+

There is no standard split; it is negotiated job by job. Splits favoring the owner, such as 100/0, 80/20, or 75/25, are common in US commercial work, with the contractor's share framed as an incentive to buy out trades aggressively and manage costs. Read how the clause treats unused contingency, because some contracts roll it into the savings pool while others return it entirely to the owner.

Who keeps the contingency in a GMP contract?+

Contractor contingency inside the GMP belongs to the contractor and covers estimating gaps, buyout shortfalls, and minor coordination issues, not owner-directed changes. Owner changes go through change orders that raise the GMP itself. At closeout, any unspent contingency usually feeds the savings calculation, so the contingency language in the contract draws real money.

Is a GMP contract a standard AIA form?+

In most US commercial work a guaranteed maximum price is executed on a published AIA agreement rather than a one-off document. AIA issues an owner-contractor agreement whose basis of payment is the cost of the work plus a fee with a guaranteed maximum price, plus a construction-manager-as-constructor agreement for the CM at risk case where the GMP is set after design has progressed far enough to price. Either way the GMP itself usually arrives as an amendment once the number is built, which is why the qualifications and allowances attached to it carry so much weight.

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Related terms

Change orderSubcontractorContingencySchedule of values (SOV)

Keep going: A guaranteed maximum price example: the $5M math, read the full guide or explore construction invoice and pay app software, GMP vs lump sum contracts.

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Figures on this page are illustrative. Construction estimates depend on project-specific conditions, source documents, market pricing, and professional judgment. Ruh's AI assists the estimator and does not replace professional review: your team reviews, validates, and approves every estimate, bid, and pricing decision.

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