Which contract type can include a GMP?

Which contract type can include a GMP?

• A. Time & Material
• B. Fixed price or lump sum
• C. Unit Price
• D. Cost-type contract

Answer: (D)

A Guaranteed Maximum Price is a price ceiling that controls project costs by tying reimbursement to actual allowable costs plus a set fee, up to a maximum amount. This arrangement is characteristic of cost-type (cost-reimbursement) contracts, where the owner pays for actual costs plus a fee rather than a fixed lump sum. The GMP protects the owner from cost overruns while giving the contractor incentive to manage costs, since any spending beyond the GMP would generally be the contractor’s risk unless changes are approved. Fixed-price or lump-sum contracts set a single price for the entire project regardless of actual costs, so there isn’t a mechanism like a GMP to cap costs. Time and materials builds project cost from labor and material at predefined rates and can include a not-to-exceed clause, but the conventional GMP concept aligns with cost-type contracts. Unit price contracts depend on measured quantities times unit costs, not on a price ceiling of total cost, so a GMP isn’t the standard feature there.

A Guaranteed Maximum Price is a price ceiling that controls project costs by tying reimbursement to actual allowable costs plus a set fee, up to a maximum amount. This arrangement is characteristic of cost-type (cost-reimbursement) contracts, where the owner pays for actual costs plus a fee rather than a fixed lump sum. The GMP protects the owner from cost overruns while giving the contractor incentive to manage costs, since any spending beyond the GMP would generally be the contractor’s risk unless changes are approved.

Fixed-price or lump-sum contracts set a single price for the entire project regardless of actual costs, so there isn’t a mechanism like a GMP to cap costs. Time and materials builds project cost from labor and material at predefined rates and can include a not-to-exceed clause, but the conventional GMP concept aligns with cost-type contracts. Unit price contracts depend on measured quantities times unit costs, not on a price ceiling of total cost, so a GMP isn’t the standard feature there.