chapter
Prime Cost Building Contract
Pages 5

Prime Cost Building Contract (PCC) The basic principle of a prime cost building contract is that a contractor will receive payment for his construction costs plus an additional payment for his profi t and overheads. From a contractor’s viewpoint this is a very low-risk form of contract as he is virtually guaranteed to recover all his construction costs and receive an agreed fee to cover his overhead costs and profi t. As a result, one of the major criticisms of this type of contract arrangement is that there is little incentive for a contractor to be effi cient, with the result that a client may pay over the market price for his construction project. It is because of this lack of fi nancial control and certainty that many clients are reluctant to enter into a prime cost contract, and recent surveys undertaken for the RICS show that the contract is rarely used. For example, from the questionnaires returned for the 2004 survey, 10 there was evidence of this form of contract being used on only three occasions. This was for works valued between £ 100,000 and £ 500,000 and accounted for just 0.02% (by value) of the construction work captured by the survey. However, despite the criticisms of this form of contract, there are occasions where its use may be advantageous to a client. There have been instances where commercial and retail premises have been damaged through fi re, fl ood or terrorist attack and the owners of these properties have used a prime cost contract to enable the repairs to be carried out as quickly as possible. In these examples, the clients ’ main priority was to have the works carried out swiftly; the potential loss of revenue from their commercial activities would far outweigh the slightly higher costs they might incur under the prime cost contract.