Which statement is NOT a definition of GMP?

Which statement is NOT a definition of GMP?

• A. If there are cost overruns, the contractor is responsible for those charges - unless there has been an official change order by the client that adds to the scope of the project.
• B. GMP, also known as Guaranteed Maximum Price, is one of the most common pricing structures used by construction contractors.
• C. If there are cost overruns, the owner is responsible for those charges - unless there has been an official change order by the Designer that adds to the scope of the project.
• D. A GMP, is a fixed fee which includes the actual costs incurred combined with a fee to cover risk.

Answer: (A)

GMP is about setting a maximum price for a project based on a defined scope, with changes to the price allowed only through formal change orders that adjust the scope or specifications. The statement that assigns cost overruns to the contractor unless there is a client-initiated change order describes risk allocation, not what GMP is. It’s focusing on who pays if costs run over, rather than on the pricing mechanism itself—the capped price and how changes to scope affect that price. Think of it this way: under a GMP arrangement, the price ceiling protects the owner from unlimited costs, while the contractor is responsible for delivering within that ceiling for the defined scope. When the owner (or architect/designer acting on the owner’s behalf) approves a change that expands the scope, the GMP is adjusted accordingly through a change order. That adjustment is how scope changes are handled, not part of what defines GMP. The other statements align more directly with what GMP represents. GMP is described as a common pricing structure used in construction, which captures the idea of a price ceiling tied to a defined scope. It’s also common to describe GMP as a cost arrangement where actual costs incurred up to the maximum price are recovered plus a fee that covers the contractor’s risk, i.e., a cost-plus-with-a-GMP structure. So the statement about overruns and who pays, while related to GMP in practice, does not define GMP itself, making it the best choice for not being a definition.

GMP is about setting a maximum price for a project based on a defined scope, with changes to the price allowed only through formal change orders that adjust the scope or specifications. The statement that assigns cost overruns to the contractor unless there is a client-initiated change order describes risk allocation, not what GMP is. It’s focusing on who pays if costs run over, rather than on the pricing mechanism itself—the capped price and how changes to scope affect that price.

Think of it this way: under a GMP arrangement, the price ceiling protects the owner from unlimited costs, while the contractor is responsible for delivering within that ceiling for the defined scope. When the owner (or architect/designer acting on the owner’s behalf) approves a change that expands the scope, the GMP is adjusted accordingly through a change order. That adjustment is how scope changes are handled, not part of what defines GMP.

The other statements align more directly with what GMP represents. GMP is described as a common pricing structure used in construction, which captures the idea of a price ceiling tied to a defined scope. It’s also common to describe GMP as a cost arrangement where actual costs incurred up to the maximum price are recovered plus a fee that covers the contractor’s risk, i.e., a cost-plus-with-a-GMP structure.

So the statement about overruns and who pays, while related to GMP in practice, does not define GMP itself, making it the best choice for not being a definition.