What Is The Prime Cost Sum In Construction?
What Is The Prime Cost Sum In Construction?
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.
It is different from a provisional sum which is an allowance for specific elements of the works not yet defined in enough detail for contractors to price. Prime cost sums are used to provide an idea of the basic cost/price of some material or items for pricing the tender.
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.
The main contractor is eligible for profit markup or attendance costs when using prime cost sums. Prime cost sums are added to items such as tiles, sanitary items, lighting fixtures, etc., to get an idea of the price of such particular material or item to be priced.
What Are Examples Of Prime Cost Sums In Construction?
Examples of prime cost sums in construction include windows and external doors, where the physical number required is known but the type, quality level, and manufacturer are yet to be decided.
Prime costs are also used for materials or goods from suppliers that will be nominated by the contractor. Provisional sums are similar to prime costs in that they are allowances for specific elements of the works not yet defined in enough detail for contractors to price.
The difference between a prime cost sum and a provisional sum is that a provisional sum is an allowance or estimate made for a specific part of the project that is yet to be described in enough detail for contractors to price.
What Is The Purpose Of Prime Cost Sum?
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.
It is intended to make allowance for specialist work that is detailed and which the developer wishes the main contractor to include in their tender return.
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.
Prime cost sums are used to allow developers to retain control over certain elements of the project, such as design detailing and product development. They can also help protect against potential increased costs and disputes.
The difference between a prime cost sum and a provisional sum is that a prime cost sum is an allowance for work or materials that have been detailed, while a provisional sum is an allowance or estimate made for a specific part of the project that is yet to be described in enough detail for contractors to appropriately price.
How Do You Calculate The Prime Cost?
The formula for calculating prime cost is Cost of Goods Sold (CoGS) + Total Labor Cost = Prime Cost. This means that to calculate the prime cost, you need to add the total cost of goods sold (CoGS) and the total labor cost.
For example, if a company has CoGS of $6,000 and labor costs of $4,000, then its prime cost would be $10,000. It is recommended that businesses calculate their prime costs on a weekly basis in order to identify any potential issues or discrepancies.
What Are The Three Components Of Prime Cost?
The three components of prime cost are direct material, direct labor, and manufacturing overhead.
- Direct material costs are the costs of raw materials or parts that go directly into producing products.
- Direct labor costs are the wages, benefits, and insurance that are paid to employees who are directly involved in manufacturing and producing the goods.
- Manufacturing overhead costs include direct factory-related costs such as the cost of machinery and the cost to operate the machinery.
These three components make up prime cost accounting which is used to assess profitability and labor efficiency.