In a Guaranteed Maximum Price (GMP) contract with a shared savings clause, the final project cost is $2,850,000 and the GMP was set at $3,100,000. If the savings are split 50/50 between owner and contractor, how much additional compensation does the contractor receive?
Correct Answer
A) $125,000
The savings are $3,100,000 - $2,850,000 = $250,000. With a 50/50 split, the contractor receives 50% of $250,000 = $125,000 as their share of the cost savings.
Why This Is the Correct Answer
In a GMP contract with shared savings, the contractor receives additional compensation when the actual project cost comes in under the guaranteed maximum price. The total savings of $250,000 ($3,100,000 - $2,850,000) is split equally between owner and contractor per the 50/50 clause. Therefore, the contractor receives exactly half of the total savings, which equals $125,000 in additional compensation beyond their base contract amount.
Why the Other Options Are Wrong
Option B: $250,000
This represents the total savings amount ($250,000) rather than the contractor's share. The contractor only receives their portion of the savings according to the sharing percentage, not the entire savings amount.
Option C: $100,000
This amount ($100,000) would represent 40% of the total savings, which doesn't align with the stated 50/50 split arrangement in the contract terms.
Option D: $200,000
This amount ($200,000) would represent 80% of the total savings, which exceeds the contractor's 50% share and would leave the owner with only 20% of the savings.
Memory Technique
Remember 'Split the Savings' - first find the gap (GMP minus actual), then split it according to the contract percentage
Reference Hint
Florida Building Construction Standards - Chapter on Contract Types and Payment Methods, specifically the section covering Cost-Plus and GMP contract structures
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