Provisional Sums Explained: A Guide for HIA Victorian New Home Contracts
In the blog post, we dive into:
What Provisional Sums are,
How they can be used for good on your project,
How they are drawn upon during your build, and
Tips for getting the most value from Provisional Sums.
What is a Provisional Sum (PS)?
A Provisional Sum is a reasonable price estimate for work when an exact price cannot be confirmed in the contract.
Think packages of work which the scope cannot be defined before signing the contract. Examples include:
Site works such as excavation,
Structural elements without final designs,
Soft landscaping with pending design and selection, and
Undecided elements like make-good to an existing house.
The builder proposes these items, and you, as the client, approve the use of the allowance on a case-by-case basis during the build.
The allowance made must include a reasonable estimate to undertake the works (including materials, subcontractor charges, delivery, installation, builder's supervision, overhead, and profit) and is included in the Contract Price.
How do Provisional Sums get used?
Once the actual cost of provisional sum works is determined, one of two things happen:
if the actual cost is below the Provisional Sum in the contract the builder must deduct the difference from the next progress claim issued to the client
if the actual cost is above the Provisional Sum in the contract, the builder will include the additional cost in the next progress claim, which the owner is then liable for.
Tips for getting the most value from Provisional Sums
Generally the Provisional Sum process is workable, it’s not preferable.
Provisional Sums are open to cost fluctuations which is not ideal after signing the contract.
Fixed price = best value for money.
If your builders contract is full of Provisional Sums take a good look and see if they are absolutely necessary. If the scope of work is well understood and a fixed price can be provided before execution of the Contract, discuss with your builder removing Provisional Sums where possible.
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Written by Annelyse, Building Contract Enthusiast, Project Manager, and founder of Build Together Project Management.
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