In a Guaranteed Maximum Price (GMP) contract with shared savings, the GMP is $750,000 with actual costs of $720,000. If savings are split 50/50, how much does the contractor receive?
Correct Answer
B) $735,000
The savings are $750,000 - $720,000 = $30,000. With 50/50 sharing, the contractor receives actual costs plus half the savings: $720,000 + ($30,000 × 0.50) = $735,000.
Why This Is the Correct Answer
In a GMP contract with shared savings, the contractor receives their actual costs plus their share of any savings achieved. The savings of $30,000 ($750,000 - $720,000) are split 50/50 between owner and contractor. Therefore, the contractor receives $720,000 (actual costs) + $15,000 (50% of savings) = $735,000. This incentivizes contractors to control costs while ensuring they're compensated fairly.
Why the Other Options Are Wrong
Option A: $720,000
This represents only the actual costs ($720,000) without including the contractor's share of the savings. In a shared savings GMP contract, the contractor is entitled to their portion of any cost savings achieved below the guaranteed maximum price.
Option C: $750,000
This is the original GMP amount ($750,000), which would only be paid if actual costs equaled the GMP. Since actual costs were lower, the contractor receives actual costs plus their share of savings, not the full GMP amount.
Option D: $745,000
This amount ($745,000) incorrectly gives the contractor 83.3% of the savings instead of the specified 50%. It appears to split the total difference between actual costs and GMP in half, rather than calculating shared savings properly.
Memory Technique
Think 'GMP = Give Me Plus': Contractor gets actual costs PLUS their share of savings. Never just actual costs alone, never the full GMP if costs are lower.
Reference Hint
Look up 'Guaranteed Maximum Price Contracts' and 'Cost-Plus Contracts with Shared Savings' in the AIA Contract Documents or construction contract law sections of your reference materials.
More Contract Admin Questions
A project experiences a 30-day delay due to unusually severe weather. The contract includes a liquidated damages clause of $1,000 per day for delays. If the weather delay is excusable but not compensable, what liquidated damages apply?
A commercial project requires a total of 12 inspections. The building department charges $85 per inspection for the first 5 inspections, $65 for inspections 6-10, and $45 for any additional inspections. What is the total inspection fee?
What document must be posted at the job site before a Certificate of Occupancy can be issued for a commercial building?
A mixed-use development requires a variance for reduced setbacks. The property is located within 500 feet of a hospital. What additional consideration must be addressed?
A LEED project requires tracking of regional materials. Materials are considered regional if they are extracted, harvested, or recovered, as well as manufactured within what distance of the project site?
People Also Study
Business & Financial Management
120 questions · 70% to pass
Project Management
60 questions · 70% to pass
Previous Question
During contract closeout, the contractor discovers that $8,000 in retainage is being withheld for warranty items that were completed satisfactorily. The owner claims the items may fail during the warranty period. What is the contractor's best course of action?
Next Question
AIA Document A401 is primarily used for: