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...

Prime Cost and Cost-Reimbursable Construction Contracts: JCT PCC 2011–2024, NEC3/NEC4 Options E/F, and FIDIC/IChemE Green Books—overview, risk allocation, payment and alternatives

Published by a LexisNexis Construction expert

Practice notes

What is a Prime cost contract?

Put simply, where a deal is let on a ‘prime cost’ basis, the contractor recovers the expenditure it incurs in delivering the works — such as labour and materials (including those supplied by sub‑contractors) — plus a Management fee on top to cover overheads and profit. This differs from the usual lump sum arrangement, under which the employer and contractor fix the total contract price payable to the contractor at the outset (subject to any clauses permitting adjustments as the works proceed) and the contractor bears the risk of any rise in the cost of the works.

Management contracting is a common setting for prime costs in practice. The management contractor is remunerated with a fee for its services plus the prime costs it incurs in performing its functions. Those Costs include amounts paid to the works contractors for the works they carry out. See Practice Note: Management contracting. A prime cost arrangement is generally viewed as equivalent to a ‘cost plus’ or ‘Cost reimbursable’ contract, although some sources maintain that there is a...

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Web page updated on 21/05/2026

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