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 locked in before signing the contract.
Think packages of work which the scope cannot be defined before signing the contract. Examples like:
Site works (e.g rock removal),
Soft landscaping with without a design, or
Fixtures and fittings that you know will be required but you haven’t selected yet (taps, tiles, flooring).
In most cases, the builder proposes the budget for these items, and you approve use of the allowance on a case-by-case basis during the build.
The allowance made should be a reasonable estimate of the cost of 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?
When a provisional sum is used, 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 must pay.
Tips for getting the most value from Provisional Sums
Provisional Sums are open to cost fluctuations which is not ideal for protecting your build budget. Generally try to keep Provisional Sums only for works that don’t have a clear scope defined - ask yourself if there is a reason the costs cannot be fixed before signing the contract. If they can be fixed, consider if that item really needs to be a provisional sum.
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.
Protect your dream build with a Building Contract Health Check:
Avoid budget blowouts before they happen
Lock in a quality control processes
Save your future self a huge amount of stress
Save thousands by spotting the hidden risks first.
I support clients with their HIA and Master Builders Home Building contracts from all states in Australia, including Victoria, ACT, Queensland, New South Wales, Tasmania, WA, and the Northern Territory.
Thanks for reading and catch you on my next post :)
Annelyse
Construction Management | M. Construction Law
