Project Cost Implications of Competitive Guaranteed Maximum Price Contracts

Abstract

Alternative project delivery methods such as design-build (D-B) and construction manager/general contractor (CM/GC) or construction manager at risk (CMR) are typically used in conjunction with best-value or qualification-based procurement and guaranteed maximum price (GMP) or other payment provisions. Recently, a new hybrid contracting strategy called “competitive GMP,” in which an alternative delivery method combines with low-bid procurement and “open book” GMP payment provisions, has been used in the construction industry. The objective of this paper is to advance the understanding of the impact of the competitive GMP contracting strategy on project costs. The exploratory structured interviews were conducted to identify the perception of the owners and contractors on selecting a contracting strategy. Three empirical case studies were then performed to examine the cost implications on the competitive GMP contracts. The first two case study projects were delivered using the competitive GMP, and the third case study project was delivered using the conventional GMP. Each case study was analyzed using a proposed framework that captures the competitive behavior of contractors by evaluating cost and discounts related to direct work, contingency, and construction change orders throughout the project development process. The results showed that the competitive GMP projects generated cost advantages to the owner through various discounts provided during the procurement but did not always attain such saving advantages during the construction. This study contributes to a body of knowledge by examining a new approach to delivering construction projects. The findings from this study also provide guidance for owners and practitioners to better understand the cost implications of competitive GMP projects throughout the project life.