Provisional Sums

# Chapter 18: Provisional Sums – Managing the Unknown  When you're documenting a project, you'll inevitably hit elements you can't fully define yet. Maybe the client hasn't chosen their kitchen fixtures, or perhaps you're waiting on geotechnical reports before finalising foundation details. This is where provisional sums come in, they're your safety valve for managing uncertainty without stalling the tender process. ## **Understanding the Fundamentals** Think of provisional sums as placeholder amounts in your contract for work that's definitely happening but can't be accurately priced yet. In Australian Standard contracts (AS 4000, AS 2124, AS 4902), provisional sums and Prime Cost (PC) sums are treated identically, both are simply allowances adjusted against actual costs. The contractor prices their margin and attendance costs separately, which means they can provide competitive labour rates even when the final scope remains undefined. Here's the critical distinction that trips up many graduates: with PC sums, contractors can accurately price their labour because the item itself is defined (say, a specific tapware range). With provisional sums, the entire scope is uncertain, so contractors must make conservative assumptions about labour requirements. This distinction affects how you specify each type and the risk profile of your project. ## **Setting Realistic Allowances in Today's Market**  The current construction market makes setting provisional sums particularly challenging. With costs escalating 4.5-6% annually across major cities and material prices swinging wildly, your traditional estimation methods need updating. Industry best practice now adds 20-25% inflation buffers for projects extending beyond twelve months, a dramatic shift from the stable pre-2020 environment. When you're setting these allowances, engage your quantity surveyor early. They're seeing real-time market data you won't have access to, and their input can mean the difference between a viable project and a budget disaster. For residential projects, plan on provisional sums of 8-15% of contract value for landscaping and 10-20% for undefined interior finishes. Commercial projects run higher, mechanical and electrical packages might need 15-25% provisional allowances when scope remains fluid. ## **Managing Provisional Sums During Construction** Once construction begins, provisional sum management becomes an active process requiring constant attention. You'll need to push clients for early decisions on undefined elements, every week of delay potentially triggers contractor claims for programme impacts. With current lead times stretching to unprecedented lengths (some imported fixtures now taking 20+ weeks), this early definition becomes even more critical. Your contract administration role includes verifying contractor claims against provisional sums. Contractors must provide itemised statements with supporting invoices, and you'll need to assess whether the work falls within the provisional sum scope. Watch for scope creep, it's remarkably easy for a provisional sum for "bathroom fixtures" to expand into complete bathroom renovations if boundaries aren't clearly defined upfront. ## **The Victorian Regulatory Landscape** In Victoria, provisional sums carry specific legal weight that affects your professional liability. Under the Domestic Building Contracts Act 1995, builders must warrant that provisional sum estimates were calculated with "reasonable care and skill", and as the specifying architect, you share this obligation. If your provisional sum proves wildly inadequate due to poor investigation, you could face professional negligence claims. The Victorian Building Authority requires detailed documentation showing how you calculated each provisional sum. This isn't bureaucratic box-ticking, it's your defence if disputes arise. Document your market research, note your assumptions, and keep records of any client instructions that affected your estimates. Your professional indemnity insurance (minimum $1 million per claim in Victoria) won't cover you if you've been negligent in your provisional sum specifications. ## **When to Use Provisional Sums (And When Not To)**  Provisional sums work well for genuinely undefined elements: contaminated soil remediation where extent remains unknown, heritage fabric repairs discovered during demolition, or finishes where client decisions are pending. They're your tool for maintaining project momentum when complete definition would cause unacceptable delays. However, resist the temptation to use provisional sums as a shortcut for incomplete documentation. Using extensive provisional sums to commence tender with half-finished designs undermines competitive pricing and transfers inappropriate risk to contractors. If you're specifying provisional sums exceeding 20% of contract value, you're probably tendering too early. Consider alternative procurement methods like Early Contractor Involvement or Guaranteed Maximum Price contracts, which better suit projects with high uncertainty. The key question to ask yourself: "Is this genuinely unknowable, or am I just running out of time?" If it's the latter, push for programme adjustment rather than compromising tender quality with excessive provisional sums. ## **Current Market Adaptations** The post-2020 construction environment has fundamentally changed how provisional sums operate. Traditional fixed-price contracts with minimal provisional sums have become almost extinct on complex projects. Instead, you'll see hybrid approaches where provisional sums cover not just undefined scope but also market volatility for defined elements. This shift reflects market reality, contractors simply won't accept unlimited price risk in the current environment. Consider specifying separate provisional sums for material cost escalation beyond agreed thresholds, particularly for steel, timber, and imported products. While this reduces cost certainty, it prevents tender prices being inflated by excessive risk contingencies. It's a pragmatic response to an unprecedented situation, and clients generally prefer realistic provisional sums over contractors pricing worst-case scenarios. **Key Terms:** - **Provisional sum**: A reasonable estimate included in contracts for necessary but not fully defined work, adjusted against actual costs - **PC sum (Prime Cost sum)**: An allowance for defined items where the specific product hasn't been selected, treated identically to provisional sums in Australian Standard contracts - **Attendance costs**: The contractor's labour and supervision costs associated with provisional sum work, priced separately in tenders - **Reasonable care and skill**: The legal standard for calculating provisional sums under Victorian legislation, requires proper investigation and professional competence - **Scope creep**: Unauthorised expansion of provisional sum work beyond original intentions, a major source of disputes - **Early Contractor Involvement (ECI)**: Alternative procurement where contractors collaborate during design, reducing provisional sum requirements through early pricing input - **Inflation buffer**: Additional percentage (currently 20-25%) added to provisional sums to account for cost escalation during project delivery