Jurisdiction(s):
United Kingdom

Key definition

Prime cost definition

What does Prime cost mean? Prime cost, in construction contracting, describes a cost‑reimbursable (cost‑plus) basis under which the contractor is paid the actual costs it properly incurs in executing the works—typically labour, materials, plant and subcontractor charges—plus an agreed fee to cover overheads and profit. The term is not defined in legislation; it is a descriptive expression used across the UK and Ireland and appears in standard forms, notably the JCT Prime Cost Building Contract. The NEC suite uses an equivalent model (Option E: cost‑reimbursable), paying Defined Cost plus Fee. Usage is broadly consistent across England & Wales, Scotland, Northern Ireland and Ireland, though terminology...

Pricing structures in construction contracts: comparing lump sum, remeasurement, prime cost and target cost, with risk profiles and example JCT, NEC, FIDIC, ICC and IChemE forms

Published by a LexisNexis Construction expert

Practice notes

Construction contract pricing structures

This Practice Note contrasts the pricing models most often used on construction projects, considering lump sum, remeasurement, prime cost and target cost contracts.

Lump sum

Also referred to as: Fixed price

In brief: the contract sum is settled before any works begin.

Features

At the outset, employer and contractor agree the total amount payable for the project, prior to commencement.
The price is not remeasured as the works proceed, so adequate tender information is essential for accurate pricing.
Where the contractor is not responsible for design, pricing is typically based on drawings and:
- a bill of quantities prepared by a quantity surveyor in line with a published standard method of measurement, listing the work items, labour and materials needed to complete the works.

During tendering, the contractor inserts rates against each item in the bills of quantities, and the product of the quantities and the corresponding rates produces the project’s contract sum (see, for example, the JCT)...

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Web page updated on 21/05/2026

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