What determines the risk allocation in a construction project when a GMP is established?

In a construction project with a Guaranteed Maximum Price (GMP) contract, the contractor indeed takes on the completion risk. This type of contract sets a ceiling on the price that the owner will pay for the project. Therefore, it is the contractor's responsibility to complete the project within that budget. If costs exceed the GMP due to project delays or unforeseen issues, the contractor must absorb those additional costs.

This allocation places a significant incentive on the contractor to manage the project's performance effectively and efficiently. It ensures that they remain accountable for delivering the project on time and within the budget outlined in the GMP. Such a setup encourages proactive risk management practices from the contractor to identify and mitigate any risks that could impact costs or timelines.

The other options present different views on risk allocation that don’t accurately reflect how GMP contracts work. For instance, stating that the contractor takes on all risks or that the owner retains all risks overlooks the collaborative nature of project risks. While risks may be managed differently in various contractual arrangements, under a GMP, it is primarily the contractor's responsibility to manage completion risk while the owner retains some risk as well.