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
D) $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: $745,000
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 B: $750,000
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.
Option C: $720,000
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.
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.
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