A Guaranteed Maximum Price can be used two ways.
1) It is given for a T&M job that you are promising won’t go over budget…hence the guaranty.
It’s not that great of a deal for you because with this type of arrangement you have no protection if the job goes over budget, while at the same time you don’t reap the gains of a good estimate because you are locked into T&M.
I do this type of agreement all the time with one particular client, who thinks he is getting a better deal, but in reality it’s just a straight up T&M job, and I make sure my budget is high enough to protect me. In a nut shell it is just service work.
MAKE SURE YOUR SCOPE IS CLEARLY DEFINED AND DOCUMENTED ON THE FRONT END. Scope changes are not part of the GMP.
2) It can be used on larger hard bid jobs as a way of promising the owner the project won’t go over budget with non-scope related change orders.
In this arrangement it is usually the GC who has the GMP, and it’s their job to keep the project within the budget. Sometimes but not always they will ask the subs (that would be us) to also agree to a GMP for non-scope related change orders.
A non-scope related change is a mistake on the plans either through engineering or design that will cost you money to fix but the overall “intent” of the plan has not changed.
Example: The engineer undersized the 1,200A feeder, and you did not catch in during the bid phase of the job. This feeder is for a 1,200A distribution panel and the intent was clearly for this to be a 1200A feeder:
Shown on plans: (3) 400KCM w-2/0 G (3) Sets (3” Conduit)
Should be: (3) 350KCM w-4/0 G (4) Sets (3” Conduit)
It’s a simple mistake at first glance 400KCM is bigger that 350, but that extra set makes all the difference.
There should be some money in yours the GCs contract as part of the GMP that is there as a contingency for this type of mistake, but if that money gets used up then you eat the mistake. There are no perfect plans or designs, every job has “gotchas” in and a GMP says that you are experienced and professional enough that you have that covered in your bid.
A Scope related change is when the owner adds a whole new wing, room, or maybe 20 new parking lot lights they left off the plans on bid day. There is no way to determine intent when the work was not shown or overtly added after contract to the project. For these types of changes, they GC and owner can not hold you to your GMP.
[This message has been edited by ITO (edited 03-08-2007).]