Which contract type sets a specific maximum charge for the contractor, intended for projects with known challenges?

Which contract type sets a specific maximum charge for the contractor, intended for projects with known challenges?

• A. Fixed Cost Plus Fixed Fee
• B. Time and Materials
• C. Guaranteed Maximum Price
• D. Fixed Cost Plus Percentage Fee

Answer: (C)

The Guaranteed Maximum Price (GMP) contract type is designed specifically to set a limit on the total cost of a project, providing both the owner and the contractor with a clear understanding of the financial cap associated with the project. This type of contract is particularly beneficial for projects that may encounter known challenges or uncertainties, as it encourages the contractor to manage costs effectively while maintaining quality and meeting project deadlines. Under a GMP contract, the contractor is responsible for completing the project within the specified maximum price. If the project's costs exceed this maximum, the contractor absorbs those additional costs, motivating them to control expenses and avoid overruns. Conversely, if the project is completed for less than the maximum amount, the savings can often be shared between the owner and contractor, providing a potential incentive for cost-efficiency. This contractual arrangement minimizes financial risk for the client while allowing the contractor to outline a detailed scope of work, strengthening their accountability and motivation to deliver the project effectively within the established budget. Consequently, the GMP contract type is an excellent choice for projects that face inherent complexities or risks, as it fosters a collaborative environment focused on maintaining project budgets while addressing recognized hurdles.

The Guaranteed Maximum Price (GMP) contract type is designed specifically to set a limit on the total cost of a project, providing both the owner and the contractor with a clear understanding of the financial cap associated with the project. This type of contract is particularly beneficial for projects that may encounter known challenges or uncertainties, as it encourages the contractor to manage costs effectively while maintaining quality and meeting project deadlines.

Under a GMP contract, the contractor is responsible for completing the project within the specified maximum price. If the project's costs exceed this maximum, the contractor absorbs those additional costs, motivating them to control expenses and avoid overruns. Conversely, if the project is completed for less than the maximum amount, the savings can often be shared between the owner and contractor, providing a potential incentive for cost-efficiency.

This contractual arrangement minimizes financial risk for the client while allowing the contractor to outline a detailed scope of work, strengthening their accountability and motivation to deliver the project effectively within the established budget. Consequently, the GMP contract type is an excellent choice for projects that face inherent complexities or risks, as it fosters a collaborative environment focused on maintaining project budgets while addressing recognized hurdles.