There are two basic options for construction pricing models – Guaranteed Maximum Price (GMP) and Cost Plus. These two options are very different in nature, so it’s important you understand how they each work as well as the pros and cons of each. 

Cost Plus

When a contractor uses cost plus, they are paid for all allowed expenses, including materials, permits, labor, etc., plus an additional fee to allow for a profit. This fee will be agreed upon by the contractor and client. The key distinction here is that there isn’t necessarily a price cap on the project because materials are likely not picked out yet.

Pros of Cost Plus

  • Contractors don’t have to adjust their quote to cover risks, so final cost might be less than a fixed price contract.
  • Projects don’t have to wait for exact quotes to be calculated so they can start faster.
  • More oversight and control over the quality of work.
  • Allows for changes in specification through the project.

Cons of Cost Plus

  • There’s no real assurance of what the final cost will be

GMP

Projects that utilize the GMP model, sometimes called fixed price, will require the contractor to estimate all the costs of materials, labor, permits, etc., including whatever profit markup they determine before the project begins. Once the contractor and client agree on this price estimation, it falls on the contractor to ensure the project does not exceed this price point.

Pros of GMP 

  • Cost control and opportunities for savings
  • Ideal for project with strict budgets
  • More collaboration between contractors and owners

Cons of GMP

  • Less flexibility with material selection and mid-project changes 

To sum it up, cost plus gives you more flexibility, but it can get expensive. GMP keeps costs under control, but it can limit your options.