Owner-contractor payment structures: stipulated sum, cost-plus, GMP, unit price

One-line orientation

The owner-contractor payment structure determines who absorbs cost risk — the contractor or the owner — and understanding each type is essential for both PjM project-delivery questions and CE contract-administration questions.

Key points

• Stipulated sum (lump sum) — AIA A101:
  • Contractor agrees to complete the work for a single fixed amount.
  • Contractor bears the risk — if actual costs exceed the sum, it comes out of the contractor’s profit.
  • Owner benefits from cost certainty; requires a fully designed project before contract is signed.
  • Alternates, allowances, and unit prices can be embedded within a stipulated sum contract to handle known unknowns.
• Cost-plus-fee:
  • Owner pays the contractor’s actual cost of work plus an agreed fee (fixed fee, percentage, or other).
  • Owner bears the risk — no ceiling on total cost.
  • Requires open-book accounting and owner trust; appropriate when scope cannot be fully defined.
• Guaranteed Maximum Price (GMP) — AIA A133 with CMc:
  • A GMP is a cost-plus contract with a cap on the agreed scope and cost basis. Approved contract changes may adjust the cap.
  • Savings below the GMP go to the owner unless the contract expressly provides a sharing formula.
  • GMP is established based on design documents available at the time — includes allowances for incomplete scope.
  • Pre-GMP estimates by the CMc are not guaranteed; the GMP itself is the binding ceiling.
  • Commonly used with the Construction Manager as Constructor (CMc) delivery method.
• Unit prices:
  • Used when the quantity of work cannot be determined in advance (earthwork, piling, demolition of unknown extent).
  • A price per unit is agreed; the total payment adjusts based on actual quantities.
  • Often embedded within a stipulated sum or GMP contract for specific line items.
• Retainage: the owner withholds part of each progress payment as an incentive to finish the work. The agreement and applicable law control the percentage and release date; retainage may remain until Final Completion.

Who bears the cost-overrun risk

Overrun risk shifts toward the owner moving left.

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A GMP (guaranteed maximum price) caps the owner’s exposure, and unit-price risk is shared because the quantity varies.

Confusions / comparison

Payment basis	Who bears overrun risk	Cost certainty for owner	When used
Stipulated sum	Contractor	High — fixed price	Fully designed project, competitive bid
Cost-plus-fee	Owner	Low — open-ended	Ill-defined scope; high owner trust
GMP (cost-plus with cap)	Owner up to cap; contractor above cap	Medium — ceiling known, actual costs vary	CMc delivery; phased or fast-track projects
Unit price	Shared — quantity unknown	Partial — price/unit fixed, total varies	Earthwork, piling, work of unknown quantity

Related

→ pp-architect-compensation-methods (this module): the parallel owner-architect fee structures · pp-fast-track-scheduling (this module): fast-track projects commonly use GMP + CMc delivery · ProPractice — AIA A101 / A133: the AIA document pair for each payment structure.