When you’re working on a construction project, you might come across a Prime Cost (PC) sum. But what does that mean for you as a contractor?
A PC sum is a value put aside in a building contract for items that haven’t been chosen or priced at the time the contract is signed. These are typically things like windows or doors. The client hasn’t yet decided on the exact products, so your QS (Quantity Surveyor) makes an allowance based on an estimate.
For example, the client might want high-quality windows valued at €50k. They will then go out for quotes for that superior product, which their QS has estimated will be within the €50k budget or close to it.
Why Do We Use PC Sums?
Certain items, like doors, windows, or ironmongery, may not be selected during the tender stage. The QS or builder makes allowances for these items to keep the project moving forward and ensure that costs stay consistent. This is where the PC sum comes in as a placeholder for these unknown costs.
As a contractor, you’re entitled to add your mark-up or profit on top of the PC sum, plus any costs related to sourcing, installing, or overseeing these items. This helps ensure you’re covering your overheads and making a fair profit.\
What Happens When PC Sums Go Wrong?
Let’s say there’s a PC sum of €10k for ironmongery, but when the invoices are collected, the total cost only comes to €8k. In this case, you’re only entitled to apply your profit margin to the €8k, not the original €10k, and the QS may reduce the contract sum.
On the other hand, if the cost exceeds the PC sum, say the ironmongery totals €12k, you’re allowed to charge the difference plus your agreed profit margin.
Keeping Accurate Records is Crucial
To manage PC sums effectively, you must keep detailed records, including invoices and receipts for every part of the project. This is crucial because if the actual costs come in below the estimated PC sums, you’ll need to reduce what you charge the client. If the costs come in higher, you’re entitled to charge the additional amount plus your margin.
At the end of the day, a PC sum is an estimate—an educated guess at what the project might cost. That’s why it’s important to submit your RFIs (Request for Information) before the project starts. This helps ensure all uncertainties are ironed out for smoother project management and more accurate cost control.
Example: Building a House
Take a homeowner like Jane Doe, who’s building her dream home. In the early stages, she doesn’t know how many electrical sockets or light fixtures she’ll need. So, the QS steps in and gives an expert opinion on what the PC sum for these electrical components should be based on experience from previous projects.
If Jane later decides that she wants a chandelier instead of a standard light fixture, the PC sum may need to be adjusted. This flexibility allows for those unknowns while also giving the contractor a safety net for pricing.
Conclusion
At the end of the project, the PQS (Professional Quantity Surveyor) and the contractor’s QS sit down and compare the actual costs against the PC sums. This is where all your careful record-keeping comes into play. If your costs are lower than the PC sum, the contract sum may be reduced. If they come in higher, you’ll be able to charge the client the additional costs plus your margin.
Basically, a PC sum is your way of making an informed estimate for those “unknowns” in a project. It keeps the budget on track and offers flexibility for changes down the line.
If you need support sorting out your PC sums from your preliminaries, contact us today at Carroll Estimating to find out how we can help you grow your business and make more money with a seamless process from tender bid to final account.