JMA

"It is unwise to pay too much, but it is worse to pay too little. When you pay too much, you lose a little money - that is all. When you pay too little you sometimes lose everything because the thing you bought was incapable of doing the thing it was bought to do... If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better."

- John Ruskin (1819-1900)

ADVANTAGES	DISADVANTAGES
"HARD BID"
Firm price for work on the plans. Price competition from many bids. Can specify exact requirements. Can transfer risks to contractor. Owner has clear rights and duties.	Change order negotiation is tough. Uncertain quality of contractors. Plans/specs must be "bullet proof". Don't benefit from cost savings. Contractor has opposing interests.
"TIME & MATERIALS"
Total freedom to make changes. Can start from preliminary plans. Actual cost records are open. Contractor works with owner. Owner, Arch & Contr can be a team.	All cost risk is on the owner. Owner pays to correct mistakes. Don't know cost in advance. Contractor lacks savings incentive. Subs are not competitively chosen.

THE "GUARANTEED MAXIMUM PRICE" ALTERNATIVE

This type of contract achieves many of the advantages of the two choices above, with few of their disadvantages. The basic concept is to use a "hard bid" estimate to set the contract ceiling and account for the expenses on a "time and materials" basis. The owner has the assurance that the cost will not exceed the upper limit, yet can benefit from any savings the contractor achieves.

A Guaranteed Maximum Price (GMP) can be established at any point in the development of the design. On a Design-Build project, we can set the GMP quite early on. Otherwise, it is usually finalized when the plans are submitted for a building permit. The owner and architect have the option to participate by approving the subcontractors to bid, selecting the sub bids to use, and reviewing the estimates of our work. The GMP includes a small percentage for contingencies along with the agreed fee.

During the course of the project, cost reports are provided to assess the amount of savings accrued or contingency used to that point. Our contracts often include provisions for us to share in any savings that exceed the contingency. This provides motivation for both parties to work together for potential savings. As changes are made to the plans, full cost information is shared before we proceed.

The essential advantage of a GMP contract is that the owner, architect, and contractor can form a team with the common goal of producing the most desirable building at the most economical price.

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