A contractor enters into a Guaranteed Maximum Price (GMP) contract for $2,400,000 with a shared savings provision of 50/50 split. The actual cost of work is $2,250,000. How much will the contractor receive as their share of savings?
Correct Answer
C) $75,000
Savings = $2,400,000 - $2,250,000 = $150,000. With 50/50 split, contractor receives $150,000 ÷ 2 = $75,000.
Why This Is the Correct Answer
Total savings = GMP minus actual cost = $2,400,000 − $2,250,000 = $150,000. With a 50/50 shared savings split, the contractor's share = $150,000 ÷ 2 = $75,000. The contractor does not receive the entire savings; they split it equally with the owner.
Why the Other Options Are Wrong
Option A: $225,000
$225,000 appears to be 10% of the GMP, which has no basis in the problem's calculation. It may result from a misapplied percentage or a miscalculation of the savings total.
Option B: $300,000
$300,000 might come from taking 10% of some combined figure or incorrectly calculating savings as a different base amount. It is not derived from the correct $150,000 savings figure.
Option D: $150,000
$150,000 is the total savings amount — the full difference between GMP and actual cost. This is a trap for candidates who forget to apply the 50/50 split to arrive at the contractor's portion. The $150,000 must be divided by 2.
Memory Technique
GMP Shared Savings formula: Savings = GMP − Actual. Contractor's Share = Savings × Contractor's Percentage. Two steps, never skip the split. '$150K savings ÷ 2 partners = $75K each.'
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