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What is the difference between GMP and lump sum construction?
A lump-sum contract is when the price will be for a set amount regardless of what the contractor's actual costs may be. In contrast, with a GMP contract, the owner pays the contractor's actual costs plus the profit. The project costs are capped at the price maximum.
What is the difference between fixed price and GMP?
A GMP contract differs from a fixed-price contract, such as a lump sum contract, in that, for the latter, the price remains the same no matter how much a contractor spends to complete the project. GMP contracts are more flexible—the property owner will reimburse the contractor for expenses up to the maximum.
What are the disadvantages of GMP contracts?
- A GMP requires the owner to be savvy about the construction process and have the time to manage the paperwork, billing, etc.
- There is a potential for a contractor to submit an inflated GMP and then use low-skill labor and/or low-quality materials to increase savings/profits.