An Incentive Scheme in GMP Contracts Using a Game Theory Approach

The paper investigates the conventional guaranteed maximum price (GMP) contract’s ability to align the contractor’s behavior with the project owner’s objectives. Our findings reveal that the default form of the GMP contract fails to sufficiently incentivize contractors to take on the risk of innovative technology adoption because contractors naturally seek to minimize risk by adhering to conventional methods. To address this shortfall, we developed an incentive scheme within the GMP framework, motivating the contractor to use their expertise to incorporate advanced technologies. We tested the proposed incentive scheme through a hypothetical case study. By employing a game theory approach, the study accounts for the decision-making behaviors of owners and contractors, both acting to maximize their respective payoffs.