A Prime Contract is an arrangement under which a firm agrees to supply specific materials on a regular and scheduled basis and terms and conditions of that contract have been agreed upon between the vendors and suppliers. A prime contract is a legally binding agreement between two or more parties. In a single-sided contract, usually between an owner or principal and a contractor or supplier, the principal is also known as the client, principal, or vendor. The other party being paid for the materials to make the construction complete is known as the, primary or main contractor.
Prime contracts are used in construction projects where one party is financing and providing funds while the other is providing material or labor. In most cases, prime contract arrangements are arrangements made between vendors and suppliers that result in an award of jobs, but there are instances when the funding sources are unrelated to the goods or services offered. For example, in purchasing real estate, one may seek a lender who is willing to finance and provide construction loans while another investor may seek a buyer of the real estate who will take care of the financing and construction of the property. In this example, the vendors are considered primary contractors and the lenders are considered subcontractors. This is how the prime contract gets established.
The most common prime contracting arrangements are found in the manufacturing and industrial sector. These are also the most familiar arrangements in the real estate and construction industries. However, there is no universal agreement as to what constitutes prime contracting. The definition of a prime contract depends largely on the situation and any legal agreements that are agreed upon by the parties involved.