What is GMP (Guaranteed Maximum Price) Contract?
A GMP (guaranteed maximum price) contract caps the owner's total cost: the contractor is reimbursed for actual costs plus a fee, up to the guaranteed ceiling. GMPs are common on fast-moving projects where design is not finished at contract signing. Once a GMP is executed, subcontract buyout follows quickly — the contractor must lock in trade pricing to protect the cap.
A GMP contract tells a BD team two things: the project is moving fast, and subcontract buyout is about to accelerate. Owners use GMPs when they want construction started before design is complete; the contractor accepts a price ceiling and manages the gap with contingency. The moment the GMP is signed, the contractor's commercial priority becomes locking in trade pricing below the estimates that built the cap.
Example: a developer signs a GMP with its GC for a logistics facility at sixty percent design. Within weeks, the GC pushes out bid packages for early trades — earthwork, concrete, steel — while later packages follow as drawings mature. Subs that priced conceptual scopes during GMP development are already positioned; others enter a compressed bid cycle where the GC's numbers are effectively set.
For subcontractors, GMP projects reward early engagement and clean scope letters. Helping a GC build its GMP — through budget pricing and design input — creates an inside track on the buyout, and understanding what allowances and contingencies sit in the GMP tells you where scope will be added, cut, or value-engineered later.