As you know, the construction world is experiencing extreme demand for materials. Delayed delivery times and spikes in pricing for those materials make life very hard for contractors and their clients. But who should bear the risk of increased material costs and the extended time required to complete a project? We believe if an owner decides to move forward in the current economic situation, the risk should be on them. Let’s take a look at defining a guaranteed maximum price contract and why you should not be signing one right now.
What is a Guaranteed Maximum Price (GMP) contract?
GMP stands for Guaranteed Maximum Price, meaning that it will only cost the owner the contract amount, no matter how much the project costs to complete. A GMP contract shifts the risk of increased material costs and an extended completion date onto the contractor. Signing a GMP contract right now would be very dangerous for your company because you would have to eat any increased costs.
WARNING: Danger Ahead
Unfortunately, not all GMP contracts will say “GMP” or “guaranteed maximum price” at the top. You run the risk of signing a contract with a guaranteed maximum price that may be hidden in the body of the contract. In fact, with the current economic situation, if you do not add a provision to any construction contract you sign that allows you to recover any increase in material costs or extra time for any material shortage, you are basically signing a GMP contract.
If you do not add specific provisions to your construction contracts, you will not be paid extra if your cost of materials goes up. In addition, you will not be given additional time to complete your work, and delay damages may be charged against you. Therefore, it is so essential to understand any contract you sign. You need to know what risks are in the contract to decide if it is worth taking the risk or if the terms of the contract need to be changed before you sign.
Protect Your Bottom Line
The Cromeens Law Firm is here to protect you and your business. As Texas contract lawyers, we can help you negotiate your subcontracts to protect you against losing your money and your assets. Our hope is that you never sign a subcontract that puts you out of business. Work with us to equip yourself with the ability to properly evaluate your risks before you sign and negotiate your next subcontract with greater confidence and ease.
Negotiate better subcontracts
We know that reviewing construction contracts is a very intimidating part of your job! How can you be expected to understand a legal document drafted by an attorney when you did not go to law school? That is why Karalynn Cromeens created The Subcontractor Institute. Her passion is to educate contractors everywhere and give them their power back when signing contracts. There, you can find a series of courses, templates, and additional resources curated by Karalynn, educating you on all the things you need to watch out for when signing a contract in the construction industry, at no cost. Really, it’s 100% free!
If you don’t have the time to take the classes, contact your friendly construction attorney at The Cromeens Law Firm and have your contracts reviewed by a construction contract lawyer—we even offer flat rates for our contract reviews. Our job is to flag all of the dangerous provisions and equip contractors with the tools needed to better understand and negotiate the contracts they sign. Call us today at 713-715-7334 to get started.