A GMP gives the client the transparency of cost-plus and the certainty of a fixed price, and it gives the contractor the worst of both if the estimate is wrong: every receipt is open to inspection, and the overrun above the cap is theirs. Common on larger residential builds and commercial work, it usually comes with a contingency line inside the maximum and a shared-savings clause, such as 75% to the owner and 25% to the contractor, for finishing under it.
A worked number
GMP $240,000 including a $12,000 contingency; fee 12% inside the number. The job finishes at $226,000 in cost plus fee: $14,000 under, split 75/25, the contractor earns an extra $3,500. The same job at $251,000 costs the contractor $11,000 out of pocket. The contingency is the only cushion, and it's the client's money until it's used.
The mistake it hides
Spending the contingency on scope changes that should have been change orders. Contingency exists for the unknowns inside the agreed scope; a client-requested upgrade is a change to the maximum, not a draw on the cushion. Contractors who blur the two run out of contingency before the real surprise arrives.
In Obra
Track the GMP as the contract value, contingency as its own budget line, and every approved change as a change order that raises the maximum. The expected final cost against the adjusted contract shows how much of the cap is left while there's still time to act.