Hitting the Max
Another type of contract is defined by a guaranteed maximum price. In these contracts, an owner puts the burden of risk on a contractor in terms of project cost and time. How does this work? The answer comes in specificity.
Diving into Details
The way that guaranteed maximum price contracts work is first and foremost by defining a very specific scope of work. This is important because the contractor creates a guaranteed maximum price for the project based on exactly what the client specifies. Any changes to this vision can impact the cost and thus require changes to the GMP. Thus, work order changes from the owner must be very minor. All of the performance specifications must be provided at the beginning of the project.
An Agreement is Struck
Once the details have been laid out, the owner and contractor agree on a project price. A guaranteed maximum is set based on the scope of work and tracked carefully. Typically, savings are shared between the owner and contractor at a previously agreed upon amount.
Budget is Everything
For some projects, the budget is relatively rigid. In those cases, a guaranteed maximum price project is an excellent choice. It allows a client to specify exactly what they need and create a budget they know won’t budge. The contractor is provided with a list of exact specifications and knows that there will be limited amount of change, allowing them to work efficiently and effectively.
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