Which contract format places a maximum price on costs with reimbursement up to that cap plus a fee?

Which contract format places a maximum price on costs with reimbursement up to that cap plus a fee?

• A. Time and Material
• B. Guaranteed Maximum Price
• C. Cost Plus Fixed Fee
• D. Fixed Price/Lump Sum

Answer: (B)

Guaranteed Maximum Price contracts place a ceiling on costs. The contractor is reimbursed for actual costs incurred up to the agreed maximum price, plus a fee for the contractor’s services. This arrangement gives the owner cost certainty while motivating the contractor to control expenses, since overruns beyond the cap are typically not reimbursed without approval. If costs come in under the cap, the contract may allow savings sharing or simply pay the fixed fee, depending on terms. Other formats either have no cap or set a single fixed price. Time and Materials can escalate without a maximum because costs accrue as work progresses. Cost Plus Fixed Fee reimburses actual costs plus a fixed fee, with no inherent cap. Fixed Price/Lump Sum fixes the total price upfront, so the contractor bears the risk of cost overruns but the owner has price certainty from the start.

Guaranteed Maximum Price contracts place a ceiling on costs. The contractor is reimbursed for actual costs incurred up to the agreed maximum price, plus a fee for the contractor’s services. This arrangement gives the owner cost certainty while motivating the contractor to control expenses, since overruns beyond the cap are typically not reimbursed without approval. If costs come in under the cap, the contract may allow savings sharing or simply pay the fixed fee, depending on terms.

Other formats either have no cap or set a single fixed price. Time and Materials can escalate without a maximum because costs accrue as work progresses. Cost Plus Fixed Fee reimburses actual costs plus a fixed fee, with no inherent cap. Fixed Price/Lump Sum fixes the total price upfront, so the contractor bears the risk of cost overruns but the owner has price certainty from the start.