Boukendour, S and Bah, R (2001) The guaranteed maximum price contract as call option. Construction Management and Economics, 19(6), pp. 563-567. ISSN 01446193
Abstract
Due to increasing constraints on project duration and costs, together with the increasing implication of contractors in the design process, guaranteed maximum price (GMP) contracts are likely to become common in the future. This paper explores a new approach for evaluating the remuneration of the contractor. The GMP contract is considered as a hybrid arrangement consisting of a cost reimbursement contract and a call option on a fixed price contract. The option pricing theory is used as a conceptual framework to assess the GMP contract and the contractors' remuneration.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | call option; cost reimbursement; fixed price; guaranteed maximum price |
| Index terms: | option, duration, conceptual framework, pricing, design process |
| Subjects: | theoretical framing, decision analysis, economic analysis, project controls, design methods |
| Topics: | Risk Management, Time Control, Business Strategy, Research Practice, Design Practice |
| Descriptive scope: | 3 PCA |
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