New Home Construction 101: What is a Provisional Sum item?

Provisional sum items in a building contract are elements of the project that cannot be precisely costed in advance. The builder will include a “provisional” amount in the contract based on their best estimate, and the final cost will be adjusted once the work is complete.

A common example of a provisional sum item is earthworks on a site where there is uncertainty about soil conditions. The builder will make a reasonable allowance for the site works based on the information available at the time. However, you may be required to cover the difference between the provisional sum and the actual cost of the work, if ground conditions are significantly different than expected.

Can you have too many Provisional Sum items?

It’s not unusual or unreasonable to have one or two provisional sum items in a normal residential building contract. Complex projects may include more. However, if your builder has included multiple provisional sums, be particularly careful. Ask how they have calculated the provisional sums and what is the likely “worst case scenario”.

If you are worried about the potential for provisional sums to blow out in value, ask your builder if anything can be done to clarify the costs. Sometimes a geotechnical report from an engineer or a detailed survey may provide enough additional information for the builder to lock in the cost of the items in question.

How about Prime Cost Items?

“Prime cost” refers to a set budget allocated for an item or set of items required for your project.

A common example is tapware. If your builder hasn’t specified a particular brand, model and style of taps, or if it’s impossible to get a firm price for what you want, then your builder is likely to allocate a certain value for taps rather than specifying exact costs. You can then choose tapware to that value from agreed suppliers.

Unlike provisional sums, a prime cost allowance is usually for the cost of the item only. So the builder needs to allow for the installation of the item separately. A prime cost item could incur additional fitting charges.

The risk with prime cost items is that your builder’s allowances may not be in line with your taste in finishes. Unreasonably low prime cost allowances may make the contract price look more attractive at the start, but the extra costs can add up quickly.

At Balance Design and Construction, we try to avoid prime cost items if possible. We find that prime cost items add unnecessary complexity for our clients. We specify quality inclusions in every new home, and offer extensive upgrade options for those clients with specific requirements for tapware, appliances, and other finishes.

The Wrap Up

Both provisional sums and prime cost items are legitimate elements of a construction contract. However, they can be confusing, so don’t be afraid to ask questions, seek clarification, and get information in writing. Your builder should be upfront about how these amounts were estimated.

Balance Design and Construction is a locally owned and operated Coffs Coast business. We know the building conditions in our region. And there’s a good chance we’ve already built a home in your neighbourhood. Click here or give us a call today to start planning your new home!

 

Provisional Sums

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