Prime cost contract
Prime cost contracts (such as JCT PPC 11) are sometimes called cost plus contracts or cost reimbursement contracts.
Prime cost contracts are used where an early or immediate start on site is required even though design information is not complete.
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.
[edit] Related articles
Featured articles and news
IHBC’s response to Parliamentary Committee
On Levelling-Up and Regeneration Bill.
Finalists for 2022 CIOB Awards revealed
Over 70 managers and organisations shortlisted for the 14 awards.
Types of building sensors on BD
From biometric to electrical current, chemical and more.
Government mandates detectors in rented homes
Changes are due to come into force on 1st October 2022.
80% of major government projects are rated red or amber
Heed advice and insight of this report IPA tells the government.
The end of the games but continued calls for action
From the Commonwealth Association of Architects.
CIOB respond to the government call for evidence
For the Levelling Up, Housing & Communities Committee.
How are buildings and their occupants responding to extreme heat?
BSRIA's Technical Director reflects on recent weather patterns.
Landownership in England in 1909
A national valuation to fund old-age pensions.
The world’s largest Commonwealth memorial to the missing.
Long after the end of the defects liability period.
BSRIA Occupant Wellbeing survey BOW
Occupant satisfaction and wellbeing in buildings.
Geometric form and buildings in brief
From the simple to the complex.
Understanding the changing nature of insulation
And the UK Government guidelines.
Three year action plan to improve equity, diversity and inclusion
Commitment agreed to by major built environment bodies.
The Construction Route – what needs to change?
Electrical skills, low carbon, high-tech and the building services revolution.
Deep geothermal power possibilities
Ultra-deep drilling with millimeter-wave beam technology.
BSRIA Briefing 2022- From the outside looking in
Looking at the built environment from space.
Competence requirements for principal contractors and designers
BSI standards 8671, 8672 and 8673.
Bringing life to burial grounds.
From failed modernism to twenty-minute neighbourhoods.
Design chill and design freeze
The gates process and change control.
Comments
For small alternation project of 8 storey building, what is the advantage of using prime cost contract?
Unless an immediate start is needed - for example if there is some danger or urgency, it is difficult to see what the advantage would be over a traditional contract.