The 4 Types of Construction Contracts: Lump Sum, Cost-Plus, T&M, and GMP

Choosing the wrong construction contract type can expose an owner to budget uncertainty, slow payment review, and disputes over scope or approved changes. The choice deserves attention before the next bid, draw, or payment application locks project teams into a process that may not fit the work. This guide compares lump sum, time and materials (T&M), cost-plus, and guaranteed maximum price (GMP) contracts, with added detail on GMP billing. Built connects owner draw workflows with 300+ lenders, helping finance teams align contract terms, billing records, and funding requirements from the start.

What Are the Four Common Construction Contract Types?

The four labels covered in this guide are Lump Sum, Time and Materials, Cost-Plus, and Guaranteed Maximum Price. They differ in how price is set, how actual costs support billing, and how changes are documented. Exact form names and obligations depend on the signed agreement and applicable law.

Key takeaways

• Lump sum sets a single fixed price for the defined work.
• Time and materials is a label whose pricing and documentation mechanics vary by agreement. The signed agreement should define labor, materials, fees, recordkeeping, and approval terms.
• Cost-plus pays the cost of the work plus an agreed fee without a stated maximum.
• GMP uses cost of the work plus a fee with a stated maximum, subject to contract terms.
• Every structure needs clear scope, change, payment, schedule, and dispute provisions.

ConsensusDocs 205 describes a fixed, single-price lump sum agreement. ConsensusDocs 235 covers cost of the work plus a fee without a GMP. ConsensusDocs 230 covers cost of the work plus a fee with a GMP.

How Do Lump Sum, T&M, Cost-Plus, and GMP Contracts Compare?

These contract types differ in how price is set, how actual costs are documented, and how approved changes affect billing. The practical difference for an owner appears during monthly review. Finance and development teams must connect completed work, supporting records, approved changes, and the next draw request.

Lump sum gives the team a single price for a defined scope. Progress billing still requires evidence. ConsensusDocs 292 tracks work performed, stored materials, retention, and approved change orders for lump sum projects. Owners should confirm how the agreement measures progress and who approves changes.

Time and materials is a label whose pricing and documentation mechanics vary by agreement. The signed agreement should define labor, materials, fees, recordkeeping, and approval terms. Cost-plus agreements should define eligible costs, fee calculations, documentation, and approval authority.

A GMP adds a stated maximum to a cost-of-work-plus-fee structure. GMP billing follows the cost-of-work-plus-fee terms in the signed agreement. A useful companion on that distinction is this guide to fixed price versus time and materials pricing.

Before comparing proposals, owners should ask the same questions of each structure:

1. Is the scope complete enough to price and administer?
2. What records support each payment application?
3. Who can approve changes, and what notice is required?
4. How do retention, stored materials, and final payment work?
5. How will billing align with the lender’s draw schedule?

What Does GMP Mean in Construction?

A guaranteed maximum price contract can base payment on the cost of the work plus a fee, subject to a stated maximum. ConsensusDocs 230 uses that structure for its GMP agreement. Scope, changes, payment rights, and exceptions still depend on the signed agreement and applicable law.

For an Owner or Developer CFO, the GMP creates a defined reference point for budget review. The finance team still needs to identify included work, eligible costs, fee calculations, and events that may change the stated maximum.

ConsensusDocs 230 addresses scope, contract price, changes, schedule, payment, final payment, insurance and bonds, claims, disputes, choice of law, and venue. The stated maximum operates within those broader contract terms. The agreement creates the operating rules for administration throughout the project.

A Development Director should test those rules against design progress and procurement timing. A Head of Project Management should confirm that change notices, approvals, and supporting records can move through the team’s normal process. The finance team should map the same terms to budget codes, draw requirements, and closeout records.

A GMP may create a price boundary while leaving project-specific cost treatment to the agreement. Specific pricing, change, payment, contingency, and risk terms depend on the signed agreement and applicable law.

How Does GMP Billing Handle Payments and Changes?

GMP billing documents work performed, stored materials, retention, and approved change orders against the agreement’s payment terms. ConsensusDocs 291 provides a standardized payment application for this purpose. Each project team must follow the signed agreement and applicable law when reviewing certification, supporting records, and payment.

Owners can use a consistent payment-review workflow:

1. Confirm the billing period. Match the application to the correct period, agreement, schedule, and current contract amount.
2. Review work performed. Compare billed progress with project records, site observations, and the agreement’s measurement rules.
3. Verify stored materials. Check the support required for stored materials, including location, ownership, insurance, and approval terms when applicable.
4. Check retention. Apply the retention terms in the signed agreement and confirm any approved reduction or release.
5. Reconcile prior payments. Confirm previous applications, payments, and the remaining balance are carried forward correctly.
6. Review approved change orders. Include only changes approved through the agreement’s required process and verify their effect on the GMP.
7. Assemble the draw record. Connect the approved application and supporting documents to the owner’s budget and lender requirements.

The construction billing process and payment applications guide provides added context for keeping that monthly cycle organized.

For a GC CFO or Controller, the same process affects payment speed, subcontractor relationships, and retention tracking. Complete support and clear approvals give reviewers the records required by the agreement. Payment rights and timing still come from the signed agreement and applicable law.

How Should Owners Choose a Construction Contract Type?

Owners should compare scope clarity, pricing basis, change procedures, payment documentation, schedule terms, insurance and bond requirements, and dispute provisions before signing. The best fit is the structure the project team can price, document, review, and fund under the actual conditions of the work.

1. Test scope readiness. A well-defined scope may support a fixed price. An evolving scope may require a structure that addresses developing costs and approvals.
2. Map the budget review. The Owner or Developer CFO should identify how each billing method will appear in budget-to-actual reporting.
3. Define change authority. The agreement should state who can authorize changes, which notices apply, and what support is required.
4. Confirm payment evidence. The team should know what must accompany work performed, stored materials, retention, and final payment.
5. Align the draw schedule. Billing dates, review windows, and lender requirements should fit the project’s funding cycle.
6. Review schedule and closeout terms. The Development Director and Head of Project Management should connect milestones, payment, claims, and final documentation.
7. Check legal and risk terms. Insurance, bonds, disputes, remedies, and governing law need project-specific review.

The team’s construction draw workflows for owners and developers should reflect the signed contract and accommodate each project’s review pattern. Specific rights, costs, remedies, and risk allocation depend on the signed agreement and applicable law.

How Built Supports Contract Billing and Draw Control

Contract administration works best when budget records, payment applications, compliance documents, and draw requirements stay connected. Owners need a clear path from the signed agreement to monthly review, lender submission, funding, and closeout.

We support connected budget and draw workflows, real-time budget visibility, automated draw assembly, and compliance tracking. That connection helps an Owner or Developer CFO review billing against the current budget. Development Directors and project leaders can keep approvals and supporting records aligned with active work.

The contract remains the source for project-specific pricing, payment, change, and risk terms. The supporting system should help the team follow those terms consistently. A connected process organizes payment applications, budget updates, compliance records, and lender-facing draw requirements without disconnected files and handoffs.

Finance leaders can trace requested funding to current budget information. That shared record keeps payment support, approvals, and compliance records with the draw.

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Construction Contract Types and GMP FAQs

What are the four common construction contract types?

This guide uses four common labels, Lump Sum, Time and Materials, Cost-Plus, and Guaranteed Maximum Price. Lump sum uses a fixed single price. Time and materials is a label whose pricing and documentation mechanics vary by agreement.

The signed agreement should define labor, materials, fees, recordkeeping, and approval terms. Exact labels, billing rules, and obligations depend on the signed agreement and applicable law.

What does GMP mean in construction?

GMP means guaranteed maximum price. ConsensusDocs 230 describes a construction agreement where payment is based on the cost of the work plus a fee with a guaranteed maximum price. The agreement also addresses scope, changes, schedules, payments, claims, and dispute terms. The signed agreement and applicable law determine the actual maximum, permitted adjustments, and each party’s responsibilities.

Is a GMP contract the same as a lump sum contract?

No. ConsensusDocs 205 describes lump sum as a fixed arrangement with a single price. ConsensusDocs 230 describes GMP as cost of the work plus a fee with a guaranteed maximum price.

Both can provide an owner with a price boundary, but their billing support and cost treatment differ. The signed agreement and applicable law control the project-specific terms.

How are payments documented under a GMP contract?

ConsensusDocs 291 provides a standardized GMP payment application for cost-of-work-plus-fee projects with a guaranteed maximum price. The form tracks work performed, stored materials, retention, payments, and approved change orders. It also includes constructor certification tied to the contract and applicable requirements. The signed agreement determines the supporting records, review process, approval authority, and payment timing for a specific project.

Can a guaranteed maximum price change after signing?

A GMP agreement can address changes, schedule changes, claims, and payment adjustments. The permitted reasons and process depend on the signed agreement and applicable law. ConsensusDocs 291 tracks approved change orders in the payment application. Owners should review who can authorize a change, what notice is required, which records support it, and how an approved change affects the stated maximum.

Who pays when project costs exceed the GMP?

There is no universal answer that applies to every GMP project. Responsibility for costs above the stated maximum depends on the signed agreement, approved changes, scope, exclusions, claims, and applicable law. Owners should not assume that every overrun belongs to the constructor. The agreement should be reviewed for the events that permit a price adjustment and the documentation required to support one.

What should owners compare before choosing a contract type?

Owners should compare scope clarity, pricing basis, payment documentation, change procedures, schedule terms, retention, insurance and bond requirements, claims, and dispute provisions. They should also test how each structure fits lender draw requirements and internal budget review. A Development Director and an Owner or Developer CFO should confirm the signed agreement supports the project’s reporting and approval process. They should also review its payment terms under applicable law.