Prime cost (PC) items and provisional sums (PS) are two items often included in a building contract which can cause great confusion among home owners. Most residential building contracts are called “fixed price contracts”, but the final contract sum can vary due to fluctuations in PC and PS items.
A PC item is an amount of money included in a contract to allow for the purchase of specific items such as tiles, kitchen appliances and plumbing fittings. An agreed amount is included at the time of signing the contract, but the specific products are not selected until a later stage. It is usually up to the builder or architect to nominate the individual PC amounts, however, the Building Contracts Act (1991) states that the builder cannot deliberately under estimate any PC items in order to reduce the overall contract sum.
If the client selects a more expensive fitting or material than allowed for in the PC item, a variation will be required to cover the additional cost. The final contract sum will then increase by this additional amount.
A provisional sum (PS) is an estimated amount of money included in the building contract to cover work or materials, or both; the extent of which cannot be accurately quoted at the start of the project. Typically, PS items are included in a contract for things such as bulk excavation or siteworks and the builder is legally required to accurately estimate these costs. However, there can often be unforeseen events on site such as unstable ground conditions or large rocks underground, that can cause significant cost increased.
The home owner needs to budget for these variations prior to starting the project. I advise my clients to lock in the selection of all fittings and fixtures as early as possible in order to minimize the number of PC and PS items in the building contract. I also recommend a 5% contingency sum is included in their "Project Budget" to cover contract variations such as changes to PC and PS items during the building process.
Parts of the above FAQ are extracts from the M.B.A.W.A. (Master Builders Association of Western Australia) website.
