Provisional sum

A provisional sum is an allowance, usually estimated by

the cost consultant, that is inserted into tender
documents for a specific element of the works that is
not yet defined in enough detail for tenderers to price.
This, together with a brief description,
allows tenderers to apply markup and attendance costs
within their overall tender price and make allowance for
the work in the contract programme.
An example of a situation where a provisional sum might
be appropriate is when work is required below an
existing structure, where the ground conditions cannot
be determined until the existing structure is demolished
and the ground opened up.
Provisional sums can be 'defined' or 'undefined':
Defined provisional sums are considered to have
been accounted for within the contractor's price and
programme. In effect the contractor is taking the risk
that their estimate will be sufficient.
Undefined provisional sums are not accounted for
in the contractor's price and programme. This means
that the client is taking the risk for the works and
the contractor may be entitled to an extension of
time and additional payments.
Provisional sums are provided for in different ways in
different forms of contract, and some forms of contract
can be a little vague about how provisional sums should
be handled, in particular regarding adjustments to the
programme.
Provisional sums place either the contractor or
the client at risk of unexpected costs or delays.
Agreeing the cost of such work or extensions of
time that might be claimed can result in tension
between the contractor and client. For this reason, they
should only be used as a last resort, they should not be
an easy fallback position for consultants (who are not
bearing any of the risk) when designs are incomplete or
information is difficult to obtain. The risks are
significant enough that the NEC Engineering and
Construction Contract (NEC3) does not have any
allowance for provisional.
 Provisional sums should not be confused with prime
cost sums, which are allowances for the supply of work
or materials to be provided by
a contractor or supplier nominated by the client.
Prime might include items that have already been
purchased by the client, such as equipment, or a
specific installation by a company with a strong existing
relationship with a client organization.

Prime cost sum

A prime cost sum is an allowance usually calculated by

the cost consultant for the supply of work or materials
to be provided by a contractor or supplier that will
be nominated by the client. The allowance is exclusive
of any profit mark up or attendance (such as material
handling,scaffolding and rubbish clearance etc) by
the main contractor.

Prime cost sums have become less common in recent

years as the nomination process has fallen out of
favour with clients.
Historically nominated subcontractors or suppliers were
selected prior to the appointment of amain
contractor for one of three reasons:
For long delivery items where design and
manufacturing times could not wait for the
appointment of a main contractor. For example, lifts,
switchgear or refrigeration plant.
Where specialist design input was required in the
early stages of design development. For example, for
a cladding system.
Where the client directly orders a preferred piece
of equipment on which design is to be based. For
example, an MRI scanner, laboratory fume cupboards
or bottling plant.
It should be noted that courts have generally taken the
view that risk in relation to the performance of
a nominated sub-contractor lies with the client and not
the contractor. This means that delay to the overall
programme caused by a nominated sub-contractor can
lead to a claim for extension of time under the main
contract and entitlement to consequential losses.

Prime cost sums should not be confused with provisional

sums which are allowances for specific elements of the
works not yet defined in enough detail
for contractors to price.

Provisional sums

A provisional sum as described in the Domestic Building

Contract Act is an estimate of the cost of carrying out
particular work. The estimate includes the cost of supplying
any materials needed for the work. An estimate is required if,
after making all reasonable enquiries, the builder cannot give
a definite amount for the item at the time the contract is
entered into.

For example, when estimating for earthworks and excavation

at the beginning of a job, the builder can work out a fairly good
estimate of the amount of money required for the job without
knowing what is actually under the ground. However, it is
impossible to be absolutely certain about the final costs as it is
based on rates. If the total volume in M3 of rock excavated was
greater than the estimated amount, then the increase in cost is
based on the rate stipulated in the contract.

Any difference between the provisional sum listed in the

contract and the actual cost is paid by the client. This in effect
changes the contract price.

The prime cost of such work (calculated in accordance

with the Definition of
Prime Cost of Day work carried out under a Building
Contract issued by the
Royal Institution of Chartered Surveyors and the
Construction Confederation which was current at Base
Date) together with percentage additions to each
section of the prime cost at the rates set out by the
Contractor in the Contract
Bills; or where the work is within the province of any
specialist trade and the said Institution and the
appropriate body representing the employers in that
trade have agreed and issued a definition of prime cost
of daywork, the prime cost of such work calculated in
accordance with that definition which was current at
the Base Date together with percentage additions on
the prime cost at the rates set out by the Contractor in
the Contract Bills.
A footnote states that the RICS has agreement about
the definition of prime cost with two specialist trades
associations electrical and heating and ventilating
associations. The contractors day work rates (or
percentages) must take into account the rates required
by the sub-contractors used in the tender.
The two industry definitions of prime cost of day work
state that the component parts which make up a prime
cost are: labour, materials and plant with
supplementary charges in case of the civil engineering
definition. The contractor adds for incidental costs,
overheads and profit at tender stage, thus introducing
competition into the day work part of the tender:
1. Labour For building works, the hourly base rates for
labour are calculated by dividing the annual prime cost
of labour by the number of working hours per annum
(see Fig. 14.1).The annual prime cost of labour
comprises:
(a) Guaranteed minimum weekly earnings.
(b) Extra payments for skill.
(c) Payments for public holidays.
(d) Employers National Insurance contributions.
(e) Annual holiday credits.
(f ) Contributions to death benefit scheme.
(g) Contribution, levy or tax payable by employer.
2. Materials the prime cost of materials is the invoice
cost after deducting trade discounts, but include cash
discounts up to 5%. For civil engineering and
government contracts the cash discount kept by the
contractor cannot exceed 2.5%.
3. Plant the definitions include schedules for plant
charges. They relate to plant already on site and the
rates include the cost of fuel, maintenance and all
consumables.
Drivers and attendants are dealt with under the labour
section.