Last edited 07 Nov 2017

Prime cost in construction contracts

In general terms, the ‘prime cost’ is the sum of the direct cost of materials and labour associated with a production process. It is the direct cost of the inputs to a process that are necessary to create the output. If the prime cost can be lowered, the process may become more profitable.

In construction, the term ‘prime cost sum’ (PC sum) is an allowance for the supply of labour, plant and materials to be provided by a contractor or supplier that will be nominated by the client. The allowance is exclusive of any profit mark up or attendance (such as material handling, scaffolding and rubbish clearance etc) by the main contractor. See prime cost sum for more information.

Prime cost contracts (sometimes referred to as cost plus contracts or cost reimbursement contracts) are contracts in which the contractor is paid the prime cost (the actual cost of labour, plant and materials) and a fee for profit and overheads.

Prime cost contracts are used where an early or immediate start on site is required even though design information is not complete, for example for urgent alteration or repair work. See Prime cost contract for more information.

Adjustments may be permitted to prime costs during the period of a contract to allow for inflation (fluctuations).