Guaranteed Maximum Price Contracts UK: GMP Explained

What this document is

A Guaranteed Maximum Price contract is a construction agreement where the contractor agrees a maximum figure for carrying out the works. If the actual cost comes in below that figure, there is usually a mechanism for sharing the saving, often called a pain/gain or pain-share arrangement.

If the cost comes in above the cap, the contractor absorbs the excess rather than passing it to the employer. GMP is not a standalone contract form in the way that JCT or NEC contracts are. It is a commercial structure that is layered onto a recognised form, most commonly a JCT Design and Build contract or an NEC Option C target cost contract with bespoke amendments.

The GMP concept sits somewhere between a lump sum and a cost-reimbursable arrangement. The employer gets cost certainty similar to a lump sum, but the open-book cost tracking of a reimbursable deal, which tends to improve transparency. GMP contracts are often used on larger, more complex projects where some design development is still expected after contract signature, and where a traditional lump sum would either be impossible to price or would carry a heavy risk premium.

How to use this document

1. Agree the basis of the cap. Before any figure is fixed, both sides need to set out exactly what the guaranteed maximum covers. That means pinning down the scope, the design information available at the point of agreement, the assumed site conditions, and any carve-outs such as client changes, statutory changes or specified risk items. A GMP that is not tied to a clear scope is effectively meaningless.
2. Choose the underlying contract form. GMP is a commercial overlay, so you need a base contract to sit underneath it. In UK practice that is usually a JCT Design and Build with schedule of amendments, or an NEC4 Option C target cost contract adapted to convert the target into a hard cap. The choice affects how payment, change control and dispute resolution work in practice.
3. Set up the open-book cost regime. Most GMP deals run on an open-book basis, meaning the contractor shares actual cost records with the employer or their cost consultant. You need to agree what counts as an allowable cost, how the contractor's fee and overheads are calculated, and what audit rights the employer has. This transparency is what makes the pain/gain mechanism workable.
4. Define the pain/gain share. If the final cost is below the cap, how is the saving split between employer and contractor? If certain defined risks materialise, does the cap move? The share ratio, often something like 50/50 on savings, needs to be clearly written out, along with the list of events that can adjust the guaranteed figure up or down.
5. Plan for change control and disputes. Even with a cap, employer-driven changes, statutory changes and relief events usually adjust the GMP. The contract should spell out the process for instructing changes, valuing them, and dealing with disagreements. Construction adjudication under the Housing Grants, Construction and Regeneration Act 1996 is available by default for qualifying construction contracts in the UK.