What’s The Difference Between A Prime Cost & Provisional Sum?

As Yarra Valley’s bespoke home-building specialists, our team at Cobalt Constructions know how important it is for you to understand the parameters of your contract. This is why we take care to explain what is and isn’t included in your build, including highlighting the details that could affect your budget.

Prime Cost and Provisional Sum allowances are standard clauses in most domestic building contracts. In this blog we’ll explain these two terms and how they could impact the cost of your home build. Understanding what these mean will help you grasp your contract terms more clearly and give you confidence in your contract price.

Prime Cost

Obviously, every home builder wants to know the cost of their dream home upfront, even though some important items haven’t been selected yet. In some cases, and for various reasons, the final cost of certain features isn’t possible to determine at the outset of the build.

Consider the Prime Cost as a general guide or informed estimate for an item or items, that includes supply and delivery. Common examples of Prime Costs are appliances, tapware, tiles and flooring.

The most common reasons to utilise Prime Cost allowances are when selections are not finalised at the time of quoting, items are subject to pricing changes (appliances may be purchased during a sale), or alternative material choices may be made after contract signing (Tasmanian Oak flooring selected but swapped to Black Butt instead). 

With all Prime Cost items, the installation component is accounted for in the contract price and is not affected by the change in the items supplied.  For example, the plumber’s installation costs have been calculated and included in the contract to install a defined quantity of taps, but the Prime Cost amount for the tapware is specified as an allowance until the make and model of the tapware is finalised.

Provisional Sum

A Provisional Sum allowance deals with elements of the build for work and materials that have not been finalised, or for which the overall quantity may not be clear at the contract signing stage. An estimate is given and this price is included in the contract with the understanding that the price could differ, if additional labour is needed or the scope changes. Common examples of Provisional Sum allowances are cabinetry, painting, electrical and landscaping works.

Provisional Sums rely on an informed cost analysis, where your builder provides an estimated allowance based on the information at hand. Provisional Sums are most commonly utilised for renovation projects where known electrical works have been quoted but the condition of the existing wiring cannot be fully assessed until demolition starts.

The Detail

Prime Costs and Provisional Sums are detailed separately in your contract. These are outlined in a way that clarifies materials, quantities, estimated costs, and how any further costs are calculated. Transparency is required to ensure that you understand exactly what is included and how it affects your overall project budget.

Essentially, Prime Cost items and Provisional Sums are allowances that are included in your contract price and are based upon the initial agreed upon scope. Although it is common to have these allowances in contracts, particularly for earthworks (due to the unpredictable nature of soil/rock composition), it is recommended to have as few allowances in your contract as possible to avoid additional build costs.

The Difference

If a Prime Cost item or Provisional Sum amount turns out to be higher than initially predicted, you will be required to pay the difference based on proof of cost as provided by our team. On a positive note, if the final cost is less than what was originally expected, the difference will be deducted from the overall contract price.

We work with you

Cobalt Constructions is here to help you create a realistic and buildable construction budget, with transparent contingencies. We want you to be happy with your financial outlay, and extremely satisfied with each and every detail of your stunning new luxury home.

As a family-owned and operated business, and with more than two decades of experience, we are committed to creating a stress-free building process, for you and your family.

To discuss the details of building your new home in the Yarra Valley, contact us today.

Get in touch with our team and experience the Cobalt Constructions difference today.

Cobalt Constructions