What Is A GMP In Construction Management?

In construction management, The GMP sets a financial ceiling for the project, providing a clear target for the maximum cost that the owner will be responsible for. Understanding and effectively utilizing GMP can be a game-changer in managing construction projects. In this blog, we will delve into what GMP is, how it can be used to your advantage, and why it’s essential for your project’s success. What Is GMP in Construction Management? GMP stands for Guaranteed Maximum Price. It’s a contractual arrangement that establishes a cap on the total cost of a construction project. This means the general contractor agrees not to exceed this maximum amount. GMP contracts are commonly used in design-build and Construction Manager at Risk (CMAR) delivery methods to offer owners some level of cost certainty. While GMP might sound like typical project management jargon, its importance cannot be overstated. It provides a financial target and a framework for cost control throughout the project life cycle. Let’s break down the core elements of GMP and how they impact construction management. The Purpose of GMP in Construction

1. Cost Cap: The GMP sets a maximum cost for the project, covering labor, materials, and profit. This cap ensures that the owner will not pay more than this amount, providing a level of cost certainty.
2. Cost Control: The general contractor is responsible for managing the project budget to stay at or below the GMP. This requires diligent cost monitoring and management to prevent overruns.
3. Shared Savings and Overruns: Some GMP contracts include a shared savings clause, meaning any savings below the GMP can be shared between the owner and the contractor. Conversely, overruns are typically the contractor’s responsibility.

Advantages of Knowing GMP During Pre-Construction One of the key benefits of GMP is its impact on the pre-construction phase. Unlike traditional methods where a contractor is selected after the design is complete, a GMP contract allows general contractors and trade partners to be involved from the start. This involvement enables:

• Design Alignment: Contractors can help shape the design to ensure it aligns with the GMP target, preventing surprises later in the project.
• Budget Accuracy: Early involvement helps in setting a realistic budget that reflects the actual cost of the project, including all necessary general conditions and requirements.
• Schedule Coordination: Having a clear GMP target helps in developing a schedule that matches the budget, ensuring that time and cost are in sync.

Handling Change Orders within GMP Once a GMP is established, any changes to the project scope typically require a change order. This can adjust the GMP to accommodate new requirements or extend the project schedule. However, many contracts include provisions to handle change orders within the existing budget and contingency plans, minimizing the need to amend the GMP. Key Steps to Establish a Proper GMP To successfully establish and manage a GMP, consider these six essential steps:

1. Proposal Phase: During initial proposals or interviews, discuss your conceptual estimating abilities, schedule, and project approach. These early discussions help in setting a realistic GMP.
2. Build the Team and Set Parameters: Assemble a team comprising the owner, design team, engineering team, and key project personnel. Establish clear parameters and ensure that the budget reflects all project requirements from the start.
3. Adapt to and Enable the Design Team: Provide real-time feedback on budget and schedule as the design evolves. This helps in maintaining alignment with the GMP target and avoids costly surprises.
4. Develop a Plan with the Owners and Design Team: Confirm that the project plan, schedule, and budget align with the GMP target. Ensure all key stakeholders are on board with the plan.
5. Finalize Planning Documents: Complete and communicate all planning documents, including schedules, logistics, and construction drawings. This ensures that the GMP is based on a well-defined and communicated plan.
6. Monitor and Communicate: Throughout the project, continuously monitor the schedule, constructability, and budget. Maintain clear communication with all parties to stay aligned with the GMP.

The Key to Successful Construction Project Management Incorporating GMP into your project management strategy allows for strategic planning, precise budgeting, and effective cost control. It provides a target that helps in validating the project plan and managing it within the set financial parameters. By integrating good communication and partnering with the design team and owners, you can hit the GMP target with minimal surprises. We hope this blog provides valuable insights into GMP construction management. Stay tuned for more discussions on effective project management strategies. Onward to successful projects!