August 8, 2019
There are many obstacles that come with building a home and it’s no secret that many of them have an impact on cost. That’s why, when a builder provides a quote or contract, we don’t always say, “this is exactly how much it’s going to cost” but use terms such as Prime Cost and Provisional Sum instead.
It’s incredibly important to understand the difference between Prime Cost and Provisional Sums, particularly when you’re the one signing the contract.
A Prime Cost relates to the supply of an item when the final cost is unknown at the time of contract signing. This is often applicable to things like appliances, which may show in your contract as a prime cost of $3000. Essentially this is a $3,000 gift voucher you can use to purchase the nominated appliances. It’s important to note that some contracts include special conditions like you must spend the cost at your builders preferred supplier.
A Provisional Sum relates to both the supply and installation of materials. One of the main reasons to use provisional sums is when there isn’t enough strong documentation to provide a fixed price for supply and install. This could be due to things like missing engineering details at the time of pricing.
Typically, Provisional Sums are used for ground works as it’s difficult to determine when a typical type of soil will be hit and therefore how much concrete will be needed. In this case, your builder will likely allow “X” amount of concrete with an estimate of how may be needed.
When the entire Provisional Sum is not used, a client will be given back the difference, however they will also be liable to pay the difference should the actual figure exceed the original estimate.
It is always in a client’s best interest to use minimal Provisional Sums. Many volume builders take advantage of the general public’s lack of awareness around these terms, which exposes them to price hikes and unexpected expenses during a build. These guys can make significant profit from under quoted Prime Costs and Provisional Sums and clients need to avoid such tactics.
When provided with a building contract, you should always ensure that any Prime Costs and Provisional Sums are fair and reasonable to cover the likely cost of the works.
To learn more about Provisional Sums vs Prime Costs, or if you’re looking for a building quote, please don’t hesitate to get in touch with Milara Building today.