Owner’s Guide
GMP Contracts Explained
A Guaranteed Maximum Price contract caps what you will pay a contractor, but the cap is only as good as what happens after signing. Buyout, the process of a GC contracting out each trade package, is where real savings or real overruns get locked in. A GC has no financial incentive to negotiate trade contracts aggressively once the GMP is set, since savings below the cap can become their fee depending on how the contract is structured. Most GMP contracts include a shared savings clause splitting the difference between owner and GC once buyout closes below the cap, which means every dollar the GC does not negotiate out of a trade package is a dollar they are quietly entitled to keep. An owner's representative sits in every buyout meeting, reviews every trade bid, and holds the GC accountable to the assumptions the GMP was built on.
On The Avenue, a $140 million mixed use development in downtown Naples, the 65 percent GMP milestone was structured as the loan funding trigger, which put real pressure on procurement sequencing and trade package completeness. Disciplined trade procurement and negotiation produced $1.95 million in savings at 75 percent buyout, without compromising design intent. That number does not happen by trusting the GMP to manage itself. It happens from someone reviewing every line.
Not every project runs on a GMP, and the oversight has to change with the contract. The Mark on 8th, 24 luxury residences in Old Naples, was delivered on time and within the approved budget on a cost-plus contract, where there is no cap and the owner carries the cost risk directly instead of the GC. That structure requires a different kind of discipline, early scope lock, invoice and allowance review, and firm control of design changes during construction, since there is no ceiling protecting the owner if scope drifts. The building sold out before it topped off, which only happens when the budget holds through the entire build, not just on paper at the start.
Across both structures, GMP and cost-plus, the constant is the same. Active management of buyout, change orders, and construction costs has protected $4.5 million in owner capital across a $500 million portfolio. The contract type changes where the risk sits. It does not change whether someone needs to be watching it.
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