- Project plans
- Project activities
- Legislation and standards
- Industry context
- Specialist wikis
Last edited 14 Sep 2020
Prime cost contract
This method of procurement is not generally recommended, but it can be useful under particular circumstances where an immediate start on site is necessary (for example for urgent alteration or repair work, or if there has been a building failure or a fire, requiring immediate reconstruction or replacement of a building so that the client can continue to operate their business).
Tendering proceeds based on an outline specification, any drawings and an estimate of costs. The contractor is paid the prime cost (the actual cost of labour, plant and materials) and a fee for overheads and profit. The fee can be agreed by negotiation or by competition, and may be a lump sum (which it may be possible to adjust if the actual cost is different from the estimate), or a percentage of the prime cost (which it may be possible to revise if the client changes the nature of the works).
Other basis for payment are possible, including combinations of lump sum and percentage fees. For example, it might be possible to fix some elements of overheads whilst applying a percentage to other elements and to profit.
This is a high risk form of procurement for the client as they are reliant on the contractor working efficiently and procuring sub-contracts economically. Sub contracts may be procured competitively, but there may be little incentive for the contractor to secure or select economic bids. Some of these difficulties can be mitigated if a partnering relationship has been established between the client and the contractor.
NB: Some people consider that a cost reimbursable contract or cost plus contract is one in which the client takes all the risk, whereas a prime cost contract is one in which the cost of the works packages (the prime cost) are reimbursed but the main contractor takes a risk on staffing, overhead costs and profit which might be tendered on a fixed price.
 Find out more
 Related articles on Designing Buildings Wiki
Featured articles and news
Tips for civil engineers and other construction professionals.
Updated credential recognition regulations introduced.
New disciplines that are worth keeping.
IHBC members encouraged to update violations database.
Non-obtrusive security sensors can help deter intruders.
Adopting a fabric first approach to efficiency.
Government emphasises training for construction and engineering trades.
ECA and SELECT offer assistance to members set back by delays.
The virtual learning event examines Historic Places - People Places.
Getting post-pandemic infrastructure on the right track.
One of England's grandest country houses.
Take just two minutes to provide your feedback.