What Is a Provisional Sum Item?
A provisional sum item is an estimated amount allocated in a construction contract for work that is not fully defined at the time the contract is entered into. It is used to account for contingencies in construction projects, particularly where certain items have yet to be determined. The purpose of provisional sum items is to provide flexibility, and allow the project to progress without having to resolve all the details upfront. These items are typically calculated by estimating the cost of the work and materials required, plus any additional costs, such as project management, site supervision and other incidental expenses.
Common examples of provisional sum items include:
- Excavation and early site works
- Services connections
- Structural elements that are not yet designed
- Soft landscaping where the design and selections have not been finalised
It is essential to understand the types of provisional sum items that may be included in a building contract, as they can have a significant impact on the overall cost of the project. Therefore, it is advisable to seek legal advice before entering into any building contract, to ensure that you have a full understanding of the implications of any provisional sum items.
Differences Between Provisional Sum and Other Contract Terms
As a homeowner, it’s essential to understand the different types of contract terms in your building agreement. Two such terms are “prime cost item” and “provisional sum item.” Prime cost items refer to the cost of supplying an item, without including any associated installation or work costs. On the other hand, provisional sum items include allowances for both the item and related work to be performed by the builder.
It’s important to note that the provisional sum differs from contingency sum. A contingency sum is a fixed amount of money set aside to cover unforeseen or unexpected costs that may arise during the project. It is not the same as a provisional sum, which is an allowance for items or work that has yet to be fully designed or costed.
The type of contract arrangement between homeowners and builders can vary. Some contracts are fixed-price, while others may include provisional sums or prime cost items. It’s important to carefully review and understand these different contract terms to avoid any potential disputes with builders.
Managing Provisional Sum Items
As a homeowner, it’s important to understand when and how to use provisional sum items in a construction project. These items are typically used when the design is not yet finalised, but the project needs to commence. If you need clarification on the cost and purpose of provisional sum items, it’s essential to consult your builder and obtain a detailed breakdown of the costs.
Provisional sum items can be a source of risk and may lead to disputes with your builder. To avoid this, it’s important to ensure that the provisional sum is adjusted once the actual cost of the work is known. If the provisional sum is not instructed, the homeowner may end up paying more for the work than anticipated.
As a homeowner, it’s important to ensure that you have a clear understanding of provisional sum items, their purpose, and the risks associated with them. By working closely with your builder and seeking professional advice, you can avoid potential disputes and ensure that your construction project is completed within budget and to your satisfaction.
Understanding Provisional Sum Costs
Provisional sum items are typically used in building contracts to cover the cost of work that is not fully defined at the time of the contract. The cost elements of a provisional sum can include materials, labour, plant, and any other costs that may be required to complete the work.
It is important to note that provisional sum items may or may not include labour and a margin. When a builder provides a quotation, they will usually include a profit and attendance on the provisional sum items, which can increase the overall cost of the project.
For example, if the provisional sum item is for electrical works, it may include the cost of materials, the cost of hiring electricians, and a percentage for the builder’s profit and attendance.
To avoid potential disputes with builders, homeowners should ensure that provisional sum items are clearly defined in the contract and that the builder provides a breakdown of the costs associated with each item. This will help the homeowner understand what is included in the provisional sum and how much they can expect to pay for each item.
It is also important to note that if a provisional sum item is not instructed or if it exceeds the budgeted amount, the builder must seek approval from the homeowner before proceeding with the work. This can help to ensure that the homeowner is aware of the cost implications and can make an informed decision about whether to proceed with the work or not.
How to Manage Material Cost Increases
Keep track of material costs:
As the project progresses, keep an eye on the cost of materials your builder is using. This will help you identify any unexpected cost increases early on.
Check the contract:
Review your contract to see what provisions are in place for dealing with cost increases. If there is a clause that allows the builder to pass on additional material costs to you, ensure it is clear and reasonable.
Check for hidden markups:
If you suspect your builder is marking up the cost of materials without any contractual right to do so, request evidence of the actual cost of the materials.
If material costs have increased beyond what you agreed to in your contract, try negotiating with your builder to reach a compromise. It’s best to do this before the work is completed and before a dispute arises.
Dealing with poor workmanship and delays:
If you are unhappy with the quality of workmanship or experiencing delays, communicate your concerns with your builder in writing. If the issue is not resolved, seek legal advice and consider making a claim in NCAT.
Protect Your Renovation: Seek Legal Advice Today
Understanding the meaning and purpose of provisional sum items is crucial for homeowners to ensure a successful construction project. Proper management of provisional sum items and material cost increases can prevent potential disputes with builders. Remember to carefully review building contracts, ask questions, and identify any potential issues before signing. By doing so, you can protect your rights as a homeowner and avoid costly disputes down the line.
If you are experiencing issues with your builder regarding provisional sum items or any other aspect of your construction project, it is important to seek legal advice from an experienced construction lawyer. Don’t wait until it’s too late – contact a lawyer as soon as possible to protect your rights and avoid potential disputes.