Prime cost sum
[edit] Introduction
A prime cost sum (PC or PC 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 (that is, a supplier that is selected by the client to carry out an element of the works and imposed on the main contractor after the main contractor has been appointed).
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 disputes.
Prime cost sums have become less common in recent years as the nomination process has fallen out of favour with clients.
Historically, nominated subcontractors or suppliers were selected prior to the appointment of a main contractor for one of three reasons:
- 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 the 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.
Prime cost sums should not be confused with provisional sums which are allowances for specific elements of the works not yet defined in enough detail for contractors to price.
For more information, see The difference between a prime cost sum and a provisional sum.
[edit] Definition
NB: 'NRM1: Order of cost estimating and cost planning for capital building work' defines a prime cost sum as; '...a sum of money included in a unit rate to be expended on materials or goods from suppliers (e.g. supply only ceramic wall tiles at £36.00/m2, supply only door furniture at £90.00/door or supply only facing bricks at £390.00/1,000).
'It is a supply only rate for materials or goods where the precise quality of those materials and goods are unknown. PC Sums exclude all costs associated with fixing or installation, all ancillary and sundry materials and goods required for the fixing or installation of the materials or goods, subcontractor’s design fees, subcontractor’s preliminaries, subcontractor’s overheads and profit, main contractor’s design fees, main contractor’s preliminaries and main contractor’s overheads and profit.'
[edit] Related articles on Designing Buildings Wiki
- Attendance.
- Bill of quantities.
- Consequential loss.
- Contract conditions.
- Contract sum.
- Defined provisional sum.
- Final account.
- Nominated sub-contractor.
- Outturn cost.
- Payments to nominated sub-contractors.
- Prime cost price.
- Provisional sums.
- Preliminaries.
- Sub-contractors.
- The difference between a prime cost sum and a provisional sum.
- Variations.
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Comments
If a fixed term contract has a pc sum and the builder increases the pc sum, however such increase was not approved by the client then is it termed as breach of contract? And is the client liable to pay such increase? The contract does allow for increase in pc sum as a variation however states that client should approve it.
As with all issues - it depends on the exact wording of the specific contract you are using. In very general terms however - the point of a PC sum is that it is an estimate put in the tender to allow the contractor to price attendance and include its execution into the contract programme. Resolution of the PC sum is the responsibility of the contract administrator, often the Architect assisted by a QS. It is up the the contract administrator to seek client approval before it is included in the contract by means of “an instruction”. Once instructed the builder is entitled to full payment of the revised contract sum.