Owners and developers planning a commercial or multi-family project in the Okanagan often hear the term guaranteed maximum price, or GMP, long before they understand how it works. A guaranteed maximum price contract sets a ceiling on what the owner will pay for the work, while still allowing the actual cost to come in lower. For projects with uncertain scope, volatile material pricing, or tight financing conditions, that ceiling can be the difference between a controlled budget and an open-ended one.
How a Guaranteed Maximum Price Contract Works
Under a GMP contract, the construction manager or contractor agrees that the total of the cost of the work plus their fee will not exceed an agreed maximum amount. The owner reimburses the actual, documented costs of labour, materials, and subcontractors, and the fee is paid on top. If the final cost lands below the maximum, the owner keeps the savings, and many contracts split those savings with the builder as an incentive to buy out the work efficiently. Because every invoice is documented and open to the owner’s review, the arrangement rewards transparency on both sides of the table.
If costs climb above the maximum for reasons within the builder’s control, the builder absorbs the overrun. That risk transfer is what separates a GMP from a pure cost plus construction contract, where the owner carries the cost uncertainty from start to finish.
When a GMP Makes Sense
A GMP is most useful when the design is far enough along to price with reasonable confidence, but not so complete that a fixed lump sum bid is practical. Lenders and equity partners on Kelowna mixed-use and multi-family projects often prefer it because it gives them a defined number to underwrite while preserving the transparency of open-book accounting.
It also suits fast-track schedules, which matter in a region where short building seasons and trade availability can quickly erode a timeline. Because the GMP can be established while drawings are still being finalized, early trade packages can be tendered and construction can begin before every detail is resolved. The earlier the builder is involved, the more reliable the number becomes, which is why GMP agreements usually follow a period of pre-construction services such as constructability reviews, scheduling, and cost estimating.
What the GMP Includes and What It Does Not
The most important part of any GMP is the definition of what the number covers. A well-drafted contract identifies the drawings and specifications it is based on, lists the allowances for items that are not yet designed, and states the contingency available to the builder for unforeseen costs within the scope of work. The fee, general conditions, insurance, and bonding costs should each be clearly identified so the owner can see how the maximum was built up.
The GMP does not protect against owner-driven scope growth. If the owner adds a floor of parking, upgrades finishes, or changes the mechanical system after the price is set, the maximum is adjusted through a formal construction change order. Unforeseen site conditions, such as contaminated soil or unexpected rock, are also commonly carved out and handled separately, so owners should read those exclusions carefully before signing. A short conversation about these exclusions at the outset prevents most of the disputes that arise later.
Common Pitfalls to Avoid
The most common problem is a GMP set too early, on incomplete drawings, with vague assumptions. When the design later develops, the builder reasonably argues that the changes fall outside the original basis, and the maximum creeps upward. Owners can avoid this by insisting on a written list of assumptions and clarifications that travels with the contract.
Another pitfall is weak cost reporting. A GMP only works when the owner receives regular, detailed cost-to-complete reports, with open access to subcontract values and buyout savings. Without that visibility, the owner cannot tell whether the project is tracking toward the ceiling or well under it, and cannot make informed decisions when scope questions arise mid-construction.
How Team Construction Approaches Guaranteed Maximum Price Contracts
Team Construction builds every GMP on a documented set of drawings, assumptions, and allowances, then reports actual costs against that maximum throughout construction so owners always know where they stand. If you are weighing contract options for a project in the Okanagan, contact our team to talk through whether a GMP is the right fit.
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