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The guaranteed maximum price contract as call option

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Listed:
  • Said Boukendour
  • Rahim Bah

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.

Suggested Citation

  • Said Boukendour & Rahim Bah, 2001. "The guaranteed maximum price contract as call option," Construction Management and Economics, Taylor & Francis Journals, vol. 19(6), pages 563-567.
    • Handle: RePEc:taf:conmgt:v:19:y:2001:i:6:p:563-567
    DOI: 10.1080/01446190110049848
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    References listed on IDEAS

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    Cited by:

    1. Kerkhove, L.-P. & Vanhoucke, M., 2017. "A parallel multi-objective scatter search for optimising incentive contract design in projects," European Journal of Operational Research, Elsevier, vol. 261(3), pages 1066-1084.
    2. Said Boukendour, 2007. "Preventing post-contractual opportunism by an option to switch from one contract to another," Construction Management and Economics, Taylor & Francis Journals, vol. 25(7), pages 723-727.
    3. Kerkhove, L.P. & Vanhoucke, M., 2016. "Incentive contract design for projects: The owner׳s perspective," Omega, Elsevier, vol. 62(C), pages 93-114.

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