Construction contracts include allowances that can help manageproject budgets. Two of the most common are Provisional Sums (PS)and Prime Cost Sums (PC).
On paper, they look similar and for ease of reference areinterchangeably referred to as “PC Sums” (rightly or wrongly).
Both are placeholders for scope and costs that aren’t locked in atcontract signing (hence being referred to as ‘allowances’).
But confusing the two can head to arguments over who pays for what,and why the final contract costs has blown out.
We go through the difference between these two and why it matters.
A Provisional Cost Sum covers BOTH the supply of the materials andlabour to install it.
It’s a best guess at the total cost of a defined but not fullydetailed scope.
An example of a provisional sum is the removal of existing hazardousmaterials (hazmat). We know the hazmat needs to be removed but it’sdifficult to know exactly how much of it there is.
Any profit, prelims and overheads are expected to be incorporatedinto the costs, so the price received for the works should only befor the trade costs (if the provisional sum allowance is notexceeded).
If the provisional sum does exceed the allowance, the Contractor canusually charge for preliminaries, overheads and margin at the ratestipulated in the contract. The contract stipulates whether margincan be charged on costs that exceed either each provisional sum orthe aggregate allowance of all provisional sum allowances included inthe contract.
A Prime Cost Sum, on the other hand, is an allowance for ONLY thesupply of an item. No labour. No install. Just the cost of theproduct itself.
It’s used when the Client hasn’t yet picked a final finish.
Common examples are:
When the choice is made, the placeholder rate or allowance is swappedout for the actual rate or cost + any builder’s margin andhandling.
Since the install is not included, the install costs are usuallyexpected to be incorporated into the contract costs. That makesdefining install scope in the contract very important. For example,you should define that the tiles to be installed are marble (notporcelain) which attracts a higher install rate.
In summary:
Feature
Provisional Sum (PS)
Prime Cost (PC)
Includes
Materials + labour/installation
Materials only
Purpose
Allowance for scope not fully defined
Allowance for supply of item not yet chosen
Examples
Excavation, hazmat removal, landscaping
Tiles, taps, fittings, fixtures
Both PS and PC allowances adjust once the real costs are known. Thatmeans:
The risk? If you don’t stay on top of these moving parts, costscreep. Disputes flare. And clients lose confidence in the numbers.
A great thing about PS and PC allowances is that amounts can be ‘let’against them throughout the contract.
Let’s take the example of the hazmat allowance. The allowance maybe $50,000. As the Contractor completes the demolition works, theymight find some asbestos behind a switchboard, more in the mastic ofmechanical ductwork and then more under some vinyl flooring. Theseseparate transactions can be let against the PS allowance atdifferent times.
The allowance is drawn down over the contract. The allowance isadjusted as amounts are let against it or when the the provisionalsum is closed out.
Progress claims should only pay up to the maximum of committed letamounts (that is, the Superintendent or Contract Administrator hasdirected to removal to proceed).
Projx keeps both Project Managers and Quantity Surveyors working fromone place. Every allowance, let amount and adjustment is tracked onone platform, with the right context attached.
Projx allows client-side project teams to let amounts againstallowances, open and close allowances and it automatically calculatesthe PFC, allowance adjustment and contract sum adjustment. There’sno other system that deals with provisional sum and prime costallowances (just ask if you don’t believe us 😉).
These features means Clients see fewer surprises, teams waste lesstime reconciling numbers, and budgets stay grounded in reality.
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