PC sum: what a prime cost item is, and the allowance worked out

An allowance against the actual cost

Put in the allowance from your contract and the actual cost of the item. The lines and totals below are worked out as the VaryPro form works out a document: the difference, a margin only if you enter one, GST at 10%, and the change to the contract price.

A PC sum or a provisional sum

A provisional sum is an allowance for work rather than an item: an estimate of the cost of work the builder can't give a definite amount for when the contract is signed, after making reasonable inquiries. Western Australia's prescribed notice to owners gives bathroom tiles as a prime cost example and site works as a provisional sum. Victoria (section 3), Queensland (Schedule 1B, section 10) and Tasmania (section 7) define a provisional sum. What each state's law says about the two.

The allowance has to be realistic

Victoria makes it an offence for a builder to put a prime cost item or provisional sum in the contract below the reasonable cost (section 21), and Western Australia to state one below the least it could reasonably cost (section 12). Queensland (Schedule 1B, section 26) and Tasmania (section 30) make the builder warrant that the amount was calculated with reasonable care and skill; Victoria does the same for provisional sums (section 20).

A margin on top of the actual cost

Whether the builder adds a margin depends on the contract. In Victoria, the contract must include a schedule for each item that describes it, breaks down its cost estimate and says how any amount charged above the actual increase is worked out (section 22), and the builder must give the owner a copy of the invoice or receipt as soon as practicable after receiving it (section 23). South Australia's prescribed notice to owners says a higher-standard item designated prime cost can cost more, "plus a surcharge, which may be up to 15% of the cost of the item". No other state's law names a figure.

The worked example adds a margin only if you enter one, on the item's actual cost, which is how the form works out a margin on the work added.

Putting the adjustment in writing

In Victoria, the variation sections of the Act don't apply to contractual terms dealing with prime cost items or provisional sums (sections 37(5) and 38(8)). The form has a box for it: tick "It adjusts a prime cost item or provisional sum", and the document prints that it adjusts one. On a Victorian document, the statement then says the adjustment is made under the parties' contract and that sections 37 and 38 don't apply. In the other states the statement is unchanged.

New South Wales's Home Building Act and Regulation, the ACT's Building Act 2004 and the Northern Territory's Building Act 1993 don't mention prime cost items or provisional sums; the nearest NSW rule is the warning a contract must carry next to a price that may be varied (section 7(5)). There, the contract's own clause on allowances governs.