Labour prime cost is the annual cost of employment over the hours actually worked, and the percentage additions go on that, never on an all-in rate.
Dayworks are valued at the prime cost of the labour, materials and plant actually used, plus the percentage additions the contractor tendered for each. Labour prime cost is not the operative's wage: it is the annual cost of employing them, wages plus employer's on-costs, divided by the hours they actually work. On an illustrative sheet, 28 craft hours and 14 labourer hours with materials and a small excavator come to 3,421.93, 18.0 per cent more than the same work measured at bill rates.
Worked in full in Construction Cost Control by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Most variations are valued by measurement, at or derived from the contract rates. Dayworks are the fallback for work that cannot properly be measured: opening up to find an unrecorded service, clearing obstructions, small repairs where the effort bears no relation to any quantity. In UK practice under JCT forms they are commonly valued on the RICS definition of prime cost of daywork, with the contractor's percentage additions priced at tender. Contracts typically require daywork sheets to be submitted promptly for verification, and a sheet that was not signed when the work could still be seen is a sheet that will be argued about.
The percentage additions cover what the prime cost leaves out: head office overheads, profit, and items such as supervision, small tools and site facilities, depending on the definition used. That is why they are large, and why applying them to the wrong base is the classic error.
| Item | Craft operative | Labourer |
|---|---|---|
| Basic hourly rate | 17.00 | 13.00 |
| Wages, 2,028 paid hours, holidays included | 34,476.00 | 26,364.00 |
| Employer's national insurance, 15% above 5,000 | 4,421.40 | 3,204.60 |
| Employer's pension, 3% above 6,240 | 847.08 | 603.72 |
| Training levy, 0.35% | 120.67 | 92.27 |
| Annual prime cost | 39,865.15 | 30,264.59 |
| Standard working hours: 2,028 less 218.4 of holiday | 1,809.6 | 1,809.6 |
| Hourly prime cost | 22.03 | 16.72 |
The thresholds and rates are illustrative and change with legislation and with the working rule agreement in use; the structure does not. Holiday hours are paid but not worked, so they sit in the numerator and come out of the denominator. The craft operative's hourly prime cost is 29.6 per cent above the basic rate before any addition.
The contractor tendered additions of 110 per cent on labour, 15 per cent on materials and 10 per cent on plant.
Hourly prime cost = (wages + employer's on-costs) ÷ (paid hours − holiday hours)
Daywork value = Σ hours × prime cost × (1 + labour addition) + materials × (1 + materials addition) + plant × (1 + plant addition)
Excel: =SUMPRODUCT(Hours,PrimeRate)*(1+LabAdd)+Mat*(1+MatAdd)+Plant*(1+PlantAdd)
Step 1, the hourly rate. 39,865.15 ÷ 1,809.6 = 22.03 for the craft operative; 30,264.59 ÷ 1,809.6 = 16.72 for the labourer.
Step 2, labour on the sheet. 28 hours × 22.03 = 616.84, plus 14 hours × 16.72 = 234.08: 850.92 of prime cost. The 110 per cent addition is 936.01, so labour is charged at 1,786.93. In effect the craft operative costs the client 46.26 an hour and the labourer 35.11.
Step 3, materials and plant. 1,240.00 of materials at invoice cost, net of trade discounts, plus 15 per cent is 1,426.00. A mini excavator for 2 days at 95.00 is 190.00, plus 10 per cent, 209.00.
| Element | Prime cost | Addition | Value |
|---|---|---|---|
| Labour | 850.92 | 936.01 | 1,786.93 |
| Materials | 1,240.00 | 186.00 | 1,426.00 |
| Plant | 190.00 | 19.00 | 209.00 |
| Total | 3,421.93 |
The same work, had it been measurable, would have been valued at 2,900.00 at bill rates. Dayworks cost 521.93 more, an 18.0 per cent premium, and labour is 52.2 per cent of the value. That premium is the price of paying for inputs rather than output: the client carries the productivity risk that measured rates leave with the contractor.
| Labour addition | Craft rate charged | Daywork total | Premium over measured |
|---|---|---|---|
| 80% | 39.65 | 3,166.66 | 9.2% |
| 110% | 46.26 | 3,421.93 | 18.0% |
| 140% | 52.87 | 3,677.21 | 26.8% |
| 170% | 59.48 | 3,932.48 | 35.6% |
This is why the additions should be evaluated at tender, not left as an afterthought. Put a provisional quantity of daywork hours in the tender so the percentages are priced into the comparison: on 400 provisional craft hours, an 80 per cent addition costs 15,861.60 and a 140 per cent one 21,148.80, a difference of 5,287.20 that a tender comparison on the contract sum alone never sees.
Valuing changes from the contract sum to the final account is the subject of the book, and the free workbooks for this case carry the bridge from Pemberton Yard's contract sum to its final account line by line. For changes that can be measured, see how to price a change order with overhead and profit.
Everything the prime cost leaves out: head office overheads and profit, and, depending on the definition used, items such as supervision, small tools and site facilities. They are tendered by the contractor and applied to prime cost only. In the illustration 110 per cent on 850.92 of labour prime cost adds 936.01.
Take the annual cost of employing the operative, wages for all paid hours plus employer's national insurance, pension and levies, and divide by the hours actually worked, net of holidays. On illustrative inputs, 39,865.15 over 1,809.6 hours gives 22.03 an hour against a basic rate of 17.00, an on-cost of 29.6 per cent.
Because the client pays for inputs, not output, and carries the productivity risk. In the illustration the daywork sheet is worth 3,421.93 against 2,900.00 at bill rates, an 18.0 per cent premium. At a 170 per cent labour addition the premium would be 35.6 per cent, which is why additions should be priced at tender.
This article is one calculation from Construction Cost Control. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
Get the book on Amazon →Free companion files
Also on Amazon UK · Amazon Germany · Amazon France · Amazon Canada
Reading guide: business operations: cost, contracts, pricing and supply chain → · All 1340 articles →
If this book helped, or didn’t, a few lines on Amazon are worth more than they look: they are what the next reader goes on. Write a review. The workbook stays free either way.