Provisional Sums
Definition and Purpose:
Provisional sums are allowances made for works, materials, or labour that cannot be adequately quantified when a building contract is entered into. They allow a construction project to progress while the unknown amount is being determined.
Types of Provisional Sums:
- Client Provisional Sums: The client provides an amount for works yet to be fully defined.
- Client PC Sums: The client provides an amount for works yet to be fully defined and asks the contractor to add a mark-up.
- Contractor Provisional Sums: The contractor allows an amount for an item of work they have insufficient information to price.
Estimation and Management:
Provisional sums are estimated and managed during the construction process. The difference between the actual costs of the work and the allowance given in the provisional sum will be deducted or added to the contract price.
Impact on Contract Sum:
If the actual cost exceeds the provisional sum allowance, a builder’s margin will be added to any increase from the estimated cost.
Prime Cost Items
Definition and Purpose:
Prime cost items are allowances made for materials or items that have not been selected and whose price is unknown when the building contract is entered into. Typical prime cost items include fixtures such as taps, door handles, and appliances like ovens or dishwashers.
Estimation and Management:
Prime cost items are estimated and managed during the construction process. The allowance for a prime cost item is limited to the costs associated with the supply and delivery of the items.
Impact on Contract Sum:
If the actual cost of the prime cost item varies from what has been estimated, the final contract sum will be adjusted accordingly.
Key Differences
Scope:
Provisional sums cover complete works, while prime cost items cover specific items.
Estimation:
Provisional sums are estimates for work that cannot be accurately priced at the time of contract signing, whereas prime cost items are estimates for the supply of specific materials or items.
Inclusion of Labour Costs:
Provisional sums include labour costs, whereas prime cost items do not.
Management:
Provisional sums are replaced by valuations of the actual work done, while prime cost items are adjusted based on the actual cost of the supplied items.
Examples in Australian Construction Contracts
In an Australian construction contract, a provisional sum might be included for the installation of a lift in a multi-story building. The exact specifications and costs of the lift are not known at the time of contract signing, so a provisional sum is included to account for this unknown. As the project progresses, the actual cost of the lift installation will be determined, and the contract sum will be adjusted accordingly.
On the other hand, a prime cost item might be included for the supply and installation of kitchen appliances. The specific appliances have not been selected, so an allowance is made for their estimated cost. Once the appliances are chosen and installed, the contract sum will be adjusted based on the actual cost of the supplied items.
Conclusion
Provisional sums and prime cost items are both important concepts in Australian construction contracts, but they serve different purposes and have distinct impacts on the overall contract sum. Understanding the key differences between these two terms is crucial for effective cost estimation and project management.