Introduction
When it comes to construction projects, understanding the different types of costs involved is crucial for both the clients and the contractors. One of the terms that may come up in the construction contract is “Prime Cost Sum.” But what exactly does it mean? In this article, we will explore what Prime Cost Sum is in construction and provide an example to help beginners understand it. We will discuss the importance of Prime Cost Sum, how it is calculated, and how it affects the construction process.
What is Prime Cost Sum in Construction?
Prime Cost Sum (PCS) is a term used in construction contracts to refer to the estimated cost of materials or goods that are not specified in the contract. These materials or goods are referred to as “prime cost items.” The purpose of a Prime Cost Sum is to provide an estimate of the cost of these items and to allocate a budget for them. The contractor will then use this budget to purchase the prime cost items on behalf of the client.
Example: Let’s say a construction contract specifies that a new kitchen will be installed in a house. The client has not yet chosen the exact appliances they want, but the contract states that the Prime Cost Sum for the appliances is $10,000. This means that the client has a budget of $10,000 for the appliances they choose. If the client chooses appliances that cost more than $10,000, they will be responsible for paying the difference. If the client chooses appliances that cost less than $10,000, the contractor will credit the difference back to the client.
What is the Prime Cost Rate Mentioned in the BOQ Description?
When Bidder is pricing in the tendering stage, the Prime cost rate in the BOQ description provides an idea of the basic cost/price of some material or items for pricing the tender. Most of the time, the material items, which are with a range of prices such as tiles, sanitary fittings, light fittings, etc. This method will help to price bids on an equal basis.
Prime Cost Sum Meaning (Definition) in JCT
According to JCT Practice note 23 (1987), It is a sum provided for work or services to be executed by a nominated subcontractor, a statutory authority or a public undertaking or for materials or goods to be obtained from an approved supplier.
The main contractor is eligible to get his markup and attendance costs to the above allowance.
Frequently Asked Questions
What is PC Sum?
- Prime Cost Sum (PC Sum) is an allowance made by the Consultant on behalf of the Employer.
- It is allocated for works or materials to be performed/supplied by nominated parties.
- For nominated works, the main Contractor adds mark-up and attendance costs to the allocated amount in the Bill of Quantities (BOQ) by the Consultant.
- The Contract Sum is adjusted based on the actual cost of these nominated works.
- If the PC Sum is for the supply of materials, the expected supply price is specified in the BOQ description by the Consultant.
- The Contractor builds up the unit rate for the works based on the specified material price.
- If the price of the material changes during the actual supply, the unit rate for the work is adjusted accordingly.
- The method of adjustment differs for remeasurement contracts and lump sum contracts.
Why is Prime Cost Sum Important?
Prime Cost Sum is important because it helps both the client and the contractor to manage costs effectively. For the client, it ensures that they have a budget for any unspecified items and can plan their finances accordingly. For the contractor, it provides a clear framework for purchasing prime cost items and ensures that they are reimbursed for their expenses. Prime Cost Sum also helps to avoid disputes between the client and the contractor regarding the cost of prime cost items.
The benefits of allowing Prime cost sums also later on client or consultant can make certain changes of specification changes to the prime cost items without causing any variations.
For the prime cost items also at the execution of works, the actual cost to be paid is similar to the Provisional Sums. Actual cost may be higher or lower than the allowed Prime cost sum, and in such cases, the contractor is required to provide all the relevant cost details with supportive documents & justify this actual cost.
How Does Prime Cost Sum Affect the Construction Process?
Prime Cost Sum affects the construction process in several ways. First, it allows the client to choose the prime cost items that they want, within the budget allocated. Second, it provides a framework for the contractor to purchase the prime cost items on behalf of the client. Third, it helps to avoid disputes between the client and the contractor regarding the cost of prime cost items. Finally, it ensures that the construction project stays within budget and is completed on time.
How is Prime Cost Sum Calculated?
Prime Cost Sum is calculated by adding up the estimated cost of all the prime cost items in the contract. The estimated cost is usually determined by the contractor, who will provide a breakdown of the costs to the client. The client will then agree to the Prime Cost Sum and include it in the contract. The Prime Cost Sum can be adjusted if the actual cost of the prime cost items exceeds the estimate.
What AreThe Difference Between Prime Cost and Provisional Sum?
Prime cost sum in construction should not be complicated with provisional sums.
Prime Cost Sum
- A PC sum is an allowance/money provision.
- The cost consultant / Quantity surveyor usually calculates the allowance in the tender stage.
- It is usually provided for getting work or materials from a nominated subcontractor or nominated supplier by the client.
- Main Contractor is eligible for profit markup or attendance costs.
- In the current practice, most of the cost consultants enter the Prime cost sum under the Provisional sum bill or Prime cost & provisional sum bill.
- Cost consultants add the prime cost rate for some BOQ descriptions like tiles, sanitary items, lighting fixtures, etc., to get an idea of the price of such particular material or item to be priced by the tenderer.
- The contractor shall provide all the relevant cost data with supportive backups & justify this actual cost.
Provisional Sum
- A provisional sum is an allowance/money provision.
- The cost consultant / Quantity surveyor usually calculates the allowance in the tender stage.
- It is provided for a certain element of the works that are not adequately described, or such details can not be given at the tender stage for tenderers to price accurately.
- The contractor shall provide all the relevant cost data with supportive backups & justify this actual cost.
- For more information see: Provisional sum
How To Adjust The PC Rates in Re-measurement Contract And Lump Sum Contract?
Re-measurement contracts and lump sum contracts have different ways of administering provisional cost (PC) rate items. Employer takes on the risk of quantity errors and PC rates in re-measurement contracts, while contractors bear the risk in lump sum contracts. By studying the following example of PC rate adjustment, you can better understand the difference.
In re-measurement contracts, the adjustment is done in the unit rate, while in lump sum contracts, the adjustment is done in the lump sum amount only.
Conclusion
In conclusion, understanding Prime Cost Sum is essential for both clients and contractors in the construction industry. It provides a clear framework for managing costs and helps to avoid disputes between parties. By allocating a budget for prime cost items, clients can plan their finances accordingly, and contractors can purchase these items on behalf of the client. With the example and information provided in this article, beginners can gain a solid understanding of Prime Cost Sum in construction.