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Boukendour, S and Bah, R (2001) The guaranteed maximum price contract as call option. Construction Management and Economics, 19(06), 563-7.
- Type: Journal Article
- Keywords: guaranteed maximum price; fixed price; cost reimbursement; call option
- ISBN/ISSN: 0144-6193
- URL: https://doi.org/10.1080/01446190110049848
Due to increasing constraints on project duration and costs, together with the increasing implication of contractors in the design process, guaranteed maximum price (GMP) contracts are likely to become common in the future. This paper explores a new approach for evaluating the remuneration of the contractor. The GMP contract is considered as a hybrid arrangement consisting of a cost reimbursement contract and a call option on a fixed price contract. The option pricing theory is used as a conceptual framework to assess the GMP contract and the contractors’ remuneration.