Understanding Different Types of Construction Contracts: GMP, Lump Sum, Cost Plus, and Design-Build
Self-performed work refers to tasks or activities that are performed by the contractor or subcontractor themselves, rather than being subcontracted out to another party. This can include things like excavation, concrete work, carpentry, and other construction-related activities. Self-performed work is often seen as a way for contractors to maintain control over the project and ensure quality, as well as to reduce costs by avoiding markups from subcontractors.
Example: "We will be self-performing the concrete work on this project to ensure that it's done to our high standards."
2. What is a GMP (Guaranteed Maximum Price) ?
A Guaranteed Maximum Price (GMP) is a type of construction contract that provides a maximum price for the project, while also allowing for some flexibility in the scope of work and potential changes during the course of the project. The GMP is typically set based on a detailed estimate of the costs of the work, and any changes or additions to the scope of work will be subject to an adjustment to the GMP.
Example: "We've negotiated a GMP with the owner that includes a guaranteed maximum price of $10 million, with some flexibility for changes in the scope of work."
3. What is a Lump Sum Contract ?
A lump sum contract is a type of construction contract in which the contractor agrees to complete the project for a fixed price, regardless of the actual costs incurred. This means that the contractor bears the risk of cost overruns, and any savings or profits are passed on to the owner. Lump sum contracts are often used for projects with well-defined scope and minimal uncertainty.
Example: "We've negotiated a lump sum contract with the owner for $10 million, which includes all labor, materials, and other costs."
4. What is a Cost Plus Contract ?
A cost plus contract is a type of construction contract in which the contractor is paid for the actual costs incurred, plus a fee or markup. This means that the contractor bears less risk than with a lump sum contract, but may also have less incentive to control costs. Cost plus contracts are often used for projects with high levels of uncertainty or changing requirements.
Example: "We've negotiated a cost plus contract with the owner, which includes a fee of 10% on top of our actual costs."
5. What is a Design-Build Contract ?
A design-build contract is a type of construction contract in which the contractor is responsible for both the design and construction of the project. This can include everything from initial conceptual drawings to final construction documents and permits. Design-build contracts are often used for projects that require a high level of coordination between design and construction activities.
Example: "We've negotiated a design-build contract with the owner, which includes both the design and construction of the new headquarters building."
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