Prime cost sum
A prime cost sum is an allowance usually calculated by the cost consultant for the supply of work or 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.
Payments are made based on the quotations / invoices of the supplied items by the contractor plus addition of reasonable / agreed percentages for overhead costs and profits. If the contractor's actual cost is higher than the bill of quantities allowance, then the contract sum will be increased to balance it up and if the cost to the contractor is lower, then the contract sum will be reduced by the balance.
The contractor should make reasonable provisions within their price for prime cost sums, however, these can prove inadequate, and so prime cost sums can be a source of increased costs and so disputes.
Prime cost sums have become less common in recent years as the nomination process has fallen out of favour with clients.
- For long delivery items where design and manufacturing times could not wait for the appointment of a main contractor. For example, lifts, switchgear or refrigeration plant.
- Where specialist design input was required in the early stages of design development. For example, for a cladding system.
- Where the client directly orders a preferred piece of equipment on which design is to be based. For example, an MRI scanner, laboratory fume cupboards or bottling plant.
It should be noted that courts have generally taken the view that risk in relation to the performance of a nominated sub-contractor lies with the client and not the contractor. This means that delay to the overall programme caused by a nominated sub-contractor can lead to a claim for extension of time under the main contract and entitlement to consequential losses.
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