Maximum Guarantee Agreement

By markelton, April 10, 2021

The problem, not just for guaranteed maximum price contracts – but for each project – is the planning of uncertainty. Since GMP contracts seek to limit the overall price of the contract, there must be some mechanisms to make the project more flexible. Consider adding detailed notification procedures to allow for prior notification and evaluation of an “extra.” It is often at this stage that value engineering occurs, that is, what can be stored elsewhere to house the price of that extra in the contract. Prior notification and agreement are essential for this to work. In its basic form, a guaranteed maximum price or GMP indicates that a customer pays you, to you, the contractor, the work costs plus an agreed profit for you up to a predetermined maximum. They then have to deal with cost overruns (“eating”), but maintenance costs are reimbursed to the customer. No wonder customers find the idea of a GMP attractive. What does this mean for contractors? The right of the creditor guaranteed by the maximum guarantee is defined in one of the following events: From the customer`s point of view, the GMP must apply to each position. Knowing the exact limit of each position item makes accounting easier, and the savings for each position item can go directly to the debtor.

From the contractor or subcontractor`s point of view, they prefer a guaranteed maximum price for the entire project. In this way, you can move costs to multiple positions if an individual post falls below the price and others exceed the price. It is more common for a job to have a GMP as a whole. Many customers want the lowest offer available for a construction or renovation project. Others are interested in the value that will be received for the money invested. Still others want to reduce their financial risks by improving their conditions. Each of these construction price approaches can be valid and lead to different business strategies. The desire to reduce risk can lead a customer to push for a guaranteed maximum price contract (GMP). Examples include a GMP in which a contractor agrees to build a terrace for a real cost and a flat price of $3,000, subject to a maximum price of $10,000. Once the work is completed, the contractor will be paid for all costs, provided the total amount, including the fee, does not exceed $10,000. If the contractor`s cost is $8,000, it will not be paid $11,000 (cost of $8,000 – $3,000) but the maximum price of $10,000. Conversely, if the contractor`s cost is $5,000, he will not receive the maximum price of $10,000, but $8,000.

Although the GMP contract is popular in the construction sector, it is not the only type of legal order used in construction projects. A cost-plus contract is similar to a GMP agreement, since compensation is based on costs incurred and a fixed fee. The only difference is that a “cost-plus” contract may not contain a maximum cap or price. On the other hand, a fixed-price contract (also called a fixed price or lump sum contract) determines the compensation of the contractor at the beginning of the project. All cost savings are generally retained by the contractor [sources: Glazov, JMA, CSIS]. During creditors and JINKO SOLAR CO., LTD. (the “debtor”) have entered into a number of commercial contracts (the “master contract”) pursuant to Article 1 of this agreement and the guarantors (with the creditor, the “parties” and each “party”) agree to grant the creditor a guarantee regarding the creditor`s right under the main contract, through friendly negotiations and consultations, entered into this agreement (the “agreement”) in accordance with China`s relevant laws and regulations.