Cost is the amount of money required to obtain a product or service, to employ labour and use plant, equipment and tools, or to operate a business.
In construction it is important to separate cost from price and value. A contractor’s cost is what it spends on labour, materials, plant, subcontractors and overheads; its price is what it charges the client, which includes profit; and value is what the work is worth to the client or under the contract. The same figure can be a cost to one party and a price to another. Some contracts define cost precisely: under NEC, for example, Defined Cost is set out in the contract and is used with a fee to assess change.
- Always make clear whether a figure is a cost or a price.
- Comparing cost with value is the basis of cost value reconciliation.
Related terms: price, value, Defined Cost, cost value reconciliation.
