Prime cost and cost reimbursable construction contracts


Published by a UUÂãÁÄÖ±²¥ Construction expert
Practice notes

Prime cost and cost reimbursable construction contracts


Published by a UUÂãÁÄÖ±²¥ Construction expert

Practice notes
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What is a Prime cost contract?

In simple terms, if a contract is agreed on a ‘prime cost’ basis the contractor will be reimbursed the Costs it incurs in carrying out the works, ie labour and materials (including those from sub-contractors), plus a Management fee on top to cover its overheads and profit. This is distinct from a typical contract agreed on a lump sum basis, where the employer and contractor agree the total contract sum payable to the contractor at the outset (subject to any contractual provisions that allow the sum to change as the works progress) and the risk of any increase in the cost of the works sits with the contractor.

Management contracting is an example of where prime costs are commonly used. The management contractor is paid a fee for the services it carries out together with the prime costs it incurs in carrying out its functions. These costs include the amount it pays to the works contractors for the works they carry out. See Practice Note: Management contracting.

A prime

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United Kingdom
Key definition:
Prime cost definition
What does Prime cost mean?

A type of cost reimbursable contract under which the contractor is paid the costs it incurs in carrying out the works, ie labour and materials (including those from sub-contractors), plus a management fee on top to cover its overheads and profit.

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