Worked Estimates and Checklists
Prime cost and provisional sums in renovation quotes: how to spot low allowances
What prime cost items and provisional sums mean in Australian building contracts, how overruns and builder's margin are charged, and how to check allowances before you sign.
A prime cost (PC) item is an allowance in the contract for something not yet chosen, such as tapware, a cooktop or tiles, which the builder supplies and installs. A provisional sum is an allowance for work that cannot be priced exactly yet, such as rock excavation or replacing rotten framing. If the real cost is higher, you pay the difference, usually plus the builder's margin. Low allowances make a quote look cheaper than it is, so before you sign, check each allowance against what you actually want and replace any unrealistic figure with your own estimate when comparing quotes.
This guide is part of worked estimates and checklists. Use it alongside comparing builder quotes.
The difference in one table
| Feature | Prime cost item | Provisional sum |
|---|---|---|
| What it covers | An item to be selected (supply, sometimes installation) | Work that cannot be priced accurately yet |
| Examples | Tapware, vanity, oven, door handles, tiles per m² | Excavation in rock, asbestos removal, replacing subfloor, extra electrical |
| What the allowance includes | Usually the item cost only; installation may be in the main price | Labour and materials for the work |
| If the actual cost is higher | You pay the difference plus the contract margin | You pay the difference plus the contract margin |
| If lower | You get a credit, usually including the margin | You get a credit |
State contract laws regulate how these allowances work. For example, Victoria's Domestic Building Contracts Act 1995 requires PC items and provisional sums to be estimated with reasonable care and skill and sets out how adjustments are charged. Rules vary, so check your state's contract guidance.
How overruns are charged (illustrative)
Suppose a contract has a $3,000 PC allowance for kitchen appliances and a 15% builder's margin on adjustments, figures chosen only to show the arithmetic.
- You choose appliances costing $5,400.
- Difference: $5,400 − $3,000 = $2,400.
- Margin: $2,400 x 15% = $360.
- Extra you pay: $2,760, including GST if the allowance and margin include GST.
Now a provisional sum of $2,000 for "replacement of subfloor as required". Once the floor is opened, the work costs $4,500.
- Difference: $4,500 − $2,000 = $2,500.
- Margin at 15%: $375.
- Extra: $2,875.
Both together add $5,635 to a contract that looked fixed. This is why your contingency needs to cover realistic allowance overruns.
Checking allowances before signing
- List every PC item and provisional sum with its amount. Ask the builder to put them in a schedule if they are scattered through the quote.
- Price your actual choices. Visit showrooms or supplier websites and note the price of the products you want, including GST.
- Check what the allowance includes. Is it supply only, or supply and installation? Per item or per m²?
- Check the margin. What percentage is added to overruns, and is it also deducted from credits?
- Ask how provisional sums were calculated. A reasonable estimate should be based on the information available, such as a site inspection or test.
- Convert to fixed prices where you can. If you choose the tiles before signing, the builder can price them exactly.
An allowance review table (illustrative)
| Item | Allowance in quote | Your realistic price | Shortfall | Shortfall + 15% margin |
|---|---|---|---|---|
| Floor and wall tiles (24 m² at $/m²) | $1,440 ($60/m²) | $2,640 ($110/m²) | $1,200 | $1,380 |
| Tapware set | $1,200 | $1,900 | $700 | $805 |
| Vanity | $1,500 | $1,500 | $0 | $0 |
| Shower screen | $900 | $1,400 | $500 | $575 |
| Total | $2,400 | $2,760 |
Add the last column to that quote's price before comparing it with others.
Red flags
- A quote with many large provisional sums and a low base price.
- Allowances that are round numbers far below showroom prices.
- No margin rate stated, or a margin on overruns but none deducted from savings.
- "Provisional sum" used for work the builder could have measured, such as standard plastering.
- Allowances that exclude GST while the rest of the quote includes it. See GST on renovations.
What the law expects (overview)
Contract laws in several states require builders to estimate allowances with reasonable care and skill, to describe what each allowance covers, and to give the owner copies of invoices supporting any adjustment. Some laws limit the total value of provisional sums in a contract or require a warning if allowances are unrealistic. If an allowance was clearly unreasonable when the contract was signed, you may have grounds to challenge the overrun. Get advice from your regulator or a building lawyer, and see building disputes.
FAQ
Can I supply my own PC items?
Often yes, if the contract allows it, but the builder may exclude warranty for owner-supplied items and you must deliver them on time.
Is the builder allowed to charge margin on a PC overrun?
Usually, if the contract states the margin. Check the rate before signing.
Are allowances negotiable?
Yes. Ask for realistic allowances or for fixed prices on items you have chosen.
What documents should I get for an adjustment?
The supplier's invoice for the item or a breakdown of the provisional sum work, plus the margin calculation.
Sources
- Consumer Affairs Victoria — prime cost items and provisional sums in Victorian contracts
- Victorian Legislation — Domestic Building Contracts Act 1995
- Building Commission NSW, via NSW Government — NSW home building contracts
- Queensland Building and Construction Commission — contract requirements in Queensland
- Building and Plumbing Commission (Victoria) — domestic building disputes
