Construction Management Practice Exam 2025 – Complete Study Guide

In a guaranteed maximum price (GMP) contract, the contractor assumes the responsibility for covering any costs that exceed the established GMP. This structure incentivizes the contractor to manage costs effectively and complete the project within budget. The GMP acts as a cap on the total project cost that the owner will pay, which means that the contractor absorbs the risk associated with any overruns beyond that agreed-upon amount.

This arrangement often leads to a collaborative atmosphere, as both the owner and contractor are motivated to complete the project efficiently and within the financial limits set by the GMP. The contractor's risk in covering expenses beyond the GMP encourages them to find cost-effective solutions and manage resources wisely throughout the project lifecycle.

Other parties involved, such as the owner, subcontractors, or architect, do not have the obligation to cover costs that exceed the GMP, as their roles are defined differently within the terms of the contract.