A commercial job is written as cost-plus with a guaranteed maximum price of $400,000. The contractor's reimbursable costs finish at $436,000. Who absorbs the difference, and what does the owner pay?
Explanation
A guaranteed maximum price reimburses cost up to a ceiling and stops there: everything above the ceiling is the contractor's, so the $36,000 overrun is the contractor's and the owner pays $400,000. That is what distinguishes a GMP from ordinary cost-plus, where the owner reimburses whatever the job actually consumes. It also distinguishes a GMP from a lump sum, because below the ceiling the owner is still paying real costs rather than a single agreed price.
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