Guaranteed Maximum Price (GMP)

Cost-plus pricing with a ceiling you cannot go past describes a guaranteed maximum price, usually written GMP. The builder bills actual costs (labor, materials, subs) plus an agreed fee, just like cost-plus, but the contract names a maximum total. That cap is the guarantee: the owner will not pay more than that number for the agreed scope, no matter what the real costs add up to.

The GMP splits risk in a specific way. Below the cap, you pay the documented costs and see the invoices. Above the cap, the builder absorbs the overage rather than passing it to you. Many GMP contracts also include a savings clause, so if the job finishes under the cap, the owner keeps part or all of the difference (sometimes shared with the builder as an incentive). That structure rewards the builder for running an efficient job instead of letting costs drift.

Where a GMP can move is scope. The cap covers the design and selections in the contract. If you add a casita, upgrade to a tile roof, or change the kitchen layout after signing, that is a change order, and a legitimate change order can raise the GMP. The cap protects you from cost overruns on the agreed work, not from new work you ask for.

For example, a Cave Creek owner signs a GMP of $850,000 for a defined custom home. The builder buys lumber that runs higher than estimated, but because total costs land just under the cap, the owner still pays no more than $850,000. Had costs blown past it on the same scope, the builder would have eaten the difference.

A GMP fits owners who want open-book pricing but cannot stomach an uncapped cost-plus number. As with any Arizona residential contract under A.R.S. 32-1158, the cap, the fee, the allowance amounts, and the change-order process should all be in writing before work starts.