What’s the Difference Between Prime Cost and Provisional Sum?
Building a new home can open up a whole new world of intimidating and confusing construction jargon, especially if it’s your first time building. One recurring area of confusion is around the terms in a building contract – and two of the most common questions we get are around prime cost and provisional sum. They can have a huge impact on your budget and effect the end product, so it’s important you understand what they are before you sign on the dotted line.
What is a Prime Cost allowance?
A Prime Cost is an allowance allocated for the specifications or quantities of an item or product. In other words, when the final cost of an item (like an appliance) isn’t known at the time of contract signing, the builder will write in an allowance for this. This means, when the time comes, you’ll have that allocated money to purchase the appliance and won’t have to worry about excess costs.
Prime Cost allowances are usually used for fixtures and fittings like tapware, tiles and appliances. Some Prime Cost allowances will specify that you need to spend the allotted money at a builder’s preferred supplier – it’s worth checking this before signing.
It’s also important to note that if you end up spending less than what was allocated for your items, your builder will deduct this from the final contract price. However, if you end up going over this cost, you’ll need to pay the difference.
What is a Provisional Sum allowance?
In contrast, a Provisional Sum is an allowance that includes both the supply and installation of an item, when the cost isn’t known. These are used so that you can choose a material and how much you need at a later date, instead of at the contract stage. A Provisional Sum is also helpful if there aren’t enough details to know exact pricing at the time of signing – for example, when engineering results haven’t come through.
Provisional Sum allowances are often used for ground works, as it’s hard to know what the builder will encounter until they start digging. The builder will estimate things like how much concrete they’ll need and include a Provisional Sum allowance for this in the contract.
Just like a Prime Cost, if the full Provisional Sum isn’t used, the difference will be deducted from the final contract price. If it exceeds the estimate, you will be liable to paying the difference.
What should I look for in my contract?
It’s important to check every Prime Cost and Provisional Sum in your building contract to ensure they seem fair and will reasonably cover the costs of the required work.
We try not to include too many of these allowances in our building contracts, as we encourage our clients to make as many design decisions and selections prior to signing. If a final decision can’t be made, we endeavour to provide accurate estimates and quotes so that the final cost is as close to the estimate as possible. This process minimises uncertainty and any potential for budget blowout down the track.