Guaranteed Maximum Price (GMP) projects can seem like a dream come true for owners who want budget predictability. But anyone who’s worked on one knows they come with their own set of complications. A question came up recently: why do architects and engineers often escape the consequences of change orders? And how do those changes ripple through a GMP project? Let’s dive in.
What Is a GMP Project?
For those unfamiliar, GMP stands for Guaranteed Maximum Price. This means the contractor guarantees the project won’t exceed a certain cost, based on the drawings and scope they’re given. Sounds simple, right? The contractor locks in a price, subs provide their bids, and everyone signs off. But here’s the catch: the drawings are typically only 80-90% complete when the bids go out.
This is where the cracks start to show. The owner gets a set price and avoids surprises (in theory), but the contractor and subs are taking on significant risk. Why? Because those incomplete drawings are often riddled with errors or omissions, leading to the dreaded change orders.
Who’s to Blame for Change Orders?
Errors in drawings aren’t uncommon. Architects and engineers are under tight deadlines, rushing to meet milestones, and sometimes things slip through the cracks. But when those errors pop up during construction, they often lead to changes in scope, cost, and time.
In a perfect world, architects and engineers would shoulder some responsibility for these mistakes. However, in reality, they rarely face the consequences. They’re usually paid a lump sum to produce the drawings and then collect a percentage during construction, regardless of the quality of their work. This leaves contractors and subs holding the bag.
Protect Yourself When Bidding on a GMP Project
Since the risks are baked into the structure of GMP projects, it’s essential to protect yourself. Here’s how:
- Qualify Your Bid Thoroughly
- Clearly outline the scope of work.
- Reference the exact drawing revisions you used to prepare your bid, including dates and page numbers.
- Add as much detail as possible to avoid disputes later.
- Account for Unforeseen Changes
- Build a contingency into your pricing. GCs and subs often elevate their prices to cover potential hiccups. This is why GMP projects cost more upfront compared to traditional bidding methods.
- Be transparent about what’s included and what isn’t. If something isn’t on the drawings, it’s not your responsibility unless you’ve agreed to it.
- Insist on Fair Change Orders
- If something was missed in the original drawings, you’re within your rights to issue a change order.
- Clearly document the added work and provide detailed cost breakdowns.
The Cost of Predictability
Here’s the kicker: GMP projects often cost the owner significantly more than traditional bids. Why? Because everyone involved—subs, GCs, and the project team—is inflating their numbers to cover unforeseen issues. By the time those contingencies and markups trickle through, the owner could be paying 3-4 times more than if they’d taken competitive bids and dealt with change orders along the way.
But owners like the perceived security of a fixed price. Even if they’re paying more, they’re willing to trade the risk of cost overruns for the certainty of a cap.
What Happens When the Drawings Are Wrong?
Let’s say the city or an architect misses something during permitting, and it’s discovered mid-construction. The contractor can’t just eat the cost. That’s where the contingency fund comes in. Most GMP projects include a pool of money set aside for such issues. If it’s not used, the GC and owner may split the savings, but if it is, it cushions the blow of unexpected changes.
The reality, though, is that those funds are often based on previous projects. If past jobs saw a 25-30% increase in costs due to change orders, those numbers get baked into the current bid. It’s a cycle that keeps GMP prices high.
Final Thoughts
GMP projects can be a double-edged sword. They’re great for owners who want cost certainty, but they’re a minefield for contractors and subs. The key to surviving and thriving on a GMP job is preparation. Qualify your bid, document everything, and don’t be afraid to push back when changes arise.
And as for the architects and engineers? They may not feel the heat, but that doesn’t mean you have to bear the brunt. Protect your interests and play the GMP game wisely. Because at the end of the day, the goal is to finish the job with your wallet and reputation intact.