• A stipulated sum contract is one where the cost of performance is set. Thus, you know exactly what you will pay. A guaranteed maximum price contract (G-Max) is one where the parties essentially form a partnership, and the contractor is guaranteed a set profit, but there is also a guranteed set maximium price. For example, if I contract with you to build a house with a stipulated sum contract of $100,000, then $100,000 is all that I will pay you. If the job only costs you $90,000, then yoi profit $10,000. If the job costs you $99,000, then you only male $1000. On the other hand, if I enter a G-Max contract to build the house for $100,000, then that is the maximum I pay. However, we will also set a profit that you expect to make, say $10,000. If the cost of the job for you is only $75,000, then I will pay you $85,000 and have saved $15,000. The G-Max is popular because it incentivizes the parties to work together. The contractor has no incentive to jack up prices because he is getting a set profit.

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