What’s the Difference Between Prime Cost and Provisional Sum?
When it comes to building a new home, construction jargon can be confusing and intimidating for many clients – especially when it comes to the contract stage. While most building contracts are relatively simple and straightforward – especially the standard HIA contract we use here at Smartbuild South Coast – there are some key terms you may still be unsure of.
Two of the most common phrases we hear clients asking for clarification on are prime cost and provisional sum. As these both have the potential to increase and even blow out your building budget, it’s vital that you understand what they mean before you sign on the dotted line.
If and when items have allowances assigned within the Detailed Cost Report, these allowances can be in two forms, as described below:
Prime Cost Allowance
A Prime Cost is an allowance allocated for the specifications and/or quantity of an item or product. Prime Cost allowances can be used to allow clients to choose the product to be included and its quantity at a later date in the design and development process, or as a price guide if there is insufficient information provided to facilitate calculation.
Provisional Sum Allowance
A Provisional Sum is an allowance allocated for the quantity and/or type of an item, including labour and material. Provisional Sum allowances can be used to allow clients to choose the material to be included and its quantity at a later date in the design and development process, or as a price guide if there is insufficient information to facilitate calculation at the time of generating the Detailed Cost Report.
If the material selections and/or works completed end up costing more than the allowance provided, you will be required to pay the difference on top of your contract price. For example, say your builder has allocated $1000 for a kitchen appliance but your selection comes in at $1500, you will be required to pay the additional $500.
Should items allocated as prime cost or works included as provisional sums cost less than estimated in the Detailed Cost Report, the builder will only be paid for the actual cost, not the full allowance.
Do prime costs and provisional sums appear in fixed price contracts?
While both prime costs and provisional sums will often be present in a fixed price contract, their inclusion should be minimal. You should endeavour to make as many design decisions and selections as possible before it comes to contract signing, to minimise prime cost and provisional sum allowances.
Similarly, your architectural builder should make every effort to minimise these items by providing estimates and obtaining quotes for materials and labour. Beware – a fixed price quote with an excessive number of prime cost or provisional sum allowances may be a sign of a lazy builder and add unnecessary risk to your project’s budget.
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As one of Illawarra’s most reputable architectural builders, we’re passionate about upholding honesty and transparency throughout the building process – and this includes the pre-construction stage.
If you’re interested in learning more about prime sums vs provisional costs or need help translating any other building jargon, get in touch with Smartbuild South Coast today.