There are firms that promote various Guaranteed Maximum Price (GMP) contracts. Why?
In order to have a true GMP contract one needs to develop the design, issue the documents for bidding and then having the work performed without any or a minimal amount of change orders. This concept sounds a lot like the traditional design, bid and build construction – which is the most cost effective method to deliver a project.
On GMP contracts it is not unheard of for the project costs to balloon way past the estimated project costs. Why does this happen? Because the design requirements were not finalized prior to issuing the documents and the most costly time to fix design or construction problems is during the construction period.
Changes to the scope during construction will create cost increases and delays that must be compensated for during the construction period. While owners and developers maybe hoping for an early start and completion, fast track design build projects have been known to have cost over-runs from the initial budget to final completion in excess of thirty percent.
The traditional design, bid and build project delivery enables the owner and developer to resolve questions and problems with the scope at the least costly stage of the project – the design period. Projects using the traditional method of delivery typically end up with one to three percent in change order costs.
