Most building contracts include provision for prime cost items and provisional sums. A prime cost item is an allowance in the contract for the supply of necessary items not yet finally selected, for example taps or door furniture. A provisional sum is an allowance in the contract for the cost of foreseeable necessary work, including the supply of materials not fully described or detailed at the time that the contract commenced, for example joinery items or a service connection.
Care with prime cost items and provisional sums
The use of prime cost items and provisional sums can be a useful way to allow a cost to be allocated to some things which are not yet fully defined. This may include the supply of a specific fitting or fixture, like a basin, or a range of works yet to be fully documented, such as the supply and installation of kitchen joinery.
Often, clients or their architects may wish to defer the final selection of minor fittings or fixtures or opt to allocate a reasonable sum against joinery or finishes in order to progress to tender, but by not documenting the work, the risk for its execution remains with the owner.
Therefore, care should be exercised when relying on prime cost items and provisional sums. Over-reliance on these estimates can result in inaccurate conclusions concerning the total contract price, which remains subject to adjustment as each prime cost or provisional sum is finalised.
To avoid problems:
- clarify whether a provisional sum includes all relevant materials and works associated with their installation (such as taking delivery, transport on and around the site, scaffolding and services connections), or the cost of supply of work alone
- confirm that the contractor has allowed for installation of a prime cost item yet to be selected (eg taps and tiles)
- confirm that the amounts allocated are exclusive of the contractor's margins for attendance, profit and overheads (ie that they are net allowances available to be spent by the owner)
- advise your client that reliance on provisional sums and sums allocated to prime cost items can result in additional costs due to escalation
- advise your client that late selection of an item could result in abortive associated work, variations, delays and extra cost
- advise your client that long lead times may apply to the ordering of many specific building materials.
While it may seem tempting to postpone some specific selections until a contract has been signed, this creates far more work during contract administration. Often during this phase the collective knowledge of the project team, which was available during documentation, is no longer readily available, leaving the contract administrator responsible for making design selections out of sequence and often under pressure from the contractor. Note: If the architect is not engaged for the contract administration stage, the onus will lie with the owner to ensure selections are made.
It is essential to provide adequate allowances for prime cost items and provisional sums in the first instance. Arbitrarily reducing these sums to fit an overall cost will invariably lead to cost overruns or delays, or both, due to difficulties in finding suitable materials or 'particular persons' to complete the works within unrealistic allowances.
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