Off-Ramp Applications in Open-Book GMP Negotiations: Three Case Studies

Negotiating a guaranteed maximum price (GMP) can become a complex process, whose success depends on the owner determining that the contractor’s proposed GMP is fair and reasonable. State departments of transportation have sought to increase the probability of reaching a mutually agreed GMP for construction manager/general contractor (CMGC) and progressive design-build (PDB) projects by requiring open-book negotiations and a third party independent cost estimator (ICE). Most CMGC and PDB project contracts will include an off-ramp whereby the contract is terminated if a mutually agreed GMP is unable to be reached. This paper reviews three projects where the contractors’ estimates exceeded the owner’s available project budget and an off-ramp was implemented. The paper’s contribution is the finding that the inclusion of the ICE is critical to the owner’s understanding of the reasonability of the contractor’s proposed GMP. It also finds that the collaborative environment engendered by the open-book process facilitates the search for solutions to avoid termination of the contract. Lastly, the information provided by the contractor and the ICE prior to the off-ramp improved the technical scope of work for the project’s eventual reprocurement.