This article provides a brief framework for understanding procurement of construction services through fixed price competitive bids. The article then briefly discusses some significant issues related to Guaranteed Maximum Price (GMP) contracts, and hopefully will serve as a primer to those interested in better understanding such contracting.
At the outset of most large construction projects, an owner often enjoys a strong bargaining position, as they will be awarding contracts for a substantial project. The strength of the agreements entered into between the owner and construction team members is a direct function of the owner’s bargaining position and their skill in utilizing it. While standard form construction agreements exist for each of the various construction procurement models, owners who regularly procure construction services often use their own forms or heavily modify available standard forms. Achieving favorable terms in an efficient manner requires the owner’s attention right at the outset of the decision to undertake a construction project.
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