There seems to be a misconception in the marketplace that lenders require a GMP/Cost-Plus form of contract. The reality is that, while a lender requires a guaranteed maximum price, this can be accomplished with a Lump Sum contract, which provides additional benefits and lower costs to the owner/developer. Both contract formats allow for the use of an ‘open book’ approach to pricing during the pre-construction phase of the project. A Lump Sum contract price will always be lower than the Guaranteed Maximum Price in a GMP/Cost-Plus contract because the GMP/cost-Plus contract will include a construction contingency (typically 5% plus or minus that is not included in a Lump Sum contract amount. Additionally, a GMP/Cost-Plus contract usually requires increased staffing levels in the field and office during delivery due to the nature of working with incomplete documents and the need to continuously negotiate the evolving scope with trade contractors. These additional project...Read More >
Does a Cost-Plus-a-Fee with a Guaranteed Maximum Price Contract Benefit the Owner?
Guaranteed Maximum Price Construction Contracts are predominately used on large, complex projects where construction needs to start ahead of the final construction documents being finalized. Examples of these projects include hospitals and large office buildings where the building structure, core MEP systems, and building envelope can be designed and firm priced by the contractor and permitted for construction, well ahead of the completion of the final construction documents for the interior of the building. In these cases, the contractor can estimate a Guaranteed Maximum Price for the project, including the not-yet-fully-defined portions of the project, and include an estimating contingency amount for the undefined portions. In these examples, the Guaranteed Maximum Price approach provides the Owner with their total financial exposure for the project and allows the fully defined portions of the project to proceed while the balance of the project design is being finalized. This results in overall time savings...Read More >