procurement guide - Guaranteed Maximum Price
Also known as GMP.
A GMP can be tendered at outset, but more often a previously tendered lump sum contract (excluding Target type contracts) is converted to a GMP following a traditional single or two-stage tender process utilising:
- Bills of Quantity (either Firm or Approximate); or
- a Schedule of Works; or
- Specification and Drawings
Thus the definition of a GMP can occur, either before commencing the works or during the course of the works. The GMP is negotiated with the chosen contractor and his sub-contractor(s) on a basis that includes for the contractor’s future design development of the scheme, albeit in many cases the initial tender methodology may not have included design.
The Contractor therefore assume a larger element of risk that with other contract relationships and takes responsibility for matters that would normally cause extensions of time and potentially additional payment(s).
There are no generally available standard Forms of Contract for a GMP, it will require a bespoke contracts or a standard contract modified by a bespoke addendum agreement.
Advantages:
- Gives cost certainty similar to that of a design and build contract whilst the client employs and retains control of the design team.
- Provides the client often with a more appropriately detailed building than might be the case if let as a design and build contract, because the client’s design team retain control of detailing.
- Potentially means that the design needs to be completed to a greater degree than normal in order to let contract as a GMP, because after the GMP is agreed all variations that cause change, will attract cost and programme alterations. Therefore the design team will want to avoid such ‘change’
Disadvantages:
However, it is also important to note that a GMP contract has the potential to provide ‘rich’ grounds for disputes; particularly in respect of whether varied work has resulted from design detailing and therefore included in the GMP, or whether it is a variation caused by client change, which is an addition to the contract sum.
Very few contractors have experience of GMP contracts and those that do have had mixed experiences. Particularly because the financial and programme risk for unforeseen circumstances is entirely borne by the contractor.
But, a GMP can mean that the contractor will take a heavy fall if things go wrong! Examples of major GMP contracts are those for the new Wembley Stadium opened in 2007, as well as the Cardiff Millennium Stadium opened in 1999 (and this contract was reported as far from a commercial success for the contractor - the former Laing Construction).