Prime Cost Items And Provisional Sums: Where A Fixed Price Contract Is Not Fixed

FIXED PRICE? CHECK THE UNFIXED ALLOWANCES.Review prime cost items and provisional sums before signing.

There is a sentence that appears in a lot of feasibility models and almost never survives contact with the contract: the build is fixed price. In most domestic building contracts the price is fixed in part, and the rest is a set of allowances that move with your selections and with what the ground turns out to be. That is not automatically a problem. It becomes a problem when nobody has measured how much of the price is exposed.

Two different things, with two different causes

Prime cost items and provisional sums look similar on a contract schedule and behave differently. The Queensland regulator defines them separately.

A prime cost item covers something you choose after the contract is signed. The QBCC guidance states that prime cost items (PC items) are for fixtures and fittings that the consumer is to select after the contract is signed e.g. kitchen and bathroom fixtures, carpet or tiles, and that the PC allowance is the amount of money built into the contract for the particular items (QBCC guidance). The risk sits with your taste and your selections: the tiles you choose may cost more per square metre than the allowance assumed.

A provisional sum covers work whose cost genuinely cannot be known yet. The same guidance states the estimate is required if, after making all reasonable enquiries, the contractor cannot give a definite amount for the contracted services at the time the contract is entered into. Rock removal, asbestos removal and earthworks are the classic examples, because nobody can see under the ground when the contract is signed.

Both are defined in the Queensland Building and Construction Commission Act 1991: a prime cost item is an item that has not been selected, or the price of which is not known, when the contract is entered into, and a provisional sum is an amount that is an estimate of the cost of providing particular contracted services for services the contractor cannot price after making all reasonable enquiries.

How the money actually moves

The direction of movement matters, and it is asymmetric. The QBCC guidance is explicit: If the total cost for that work is greater than the estimated amount, then the increase in cost is an additional cost to the consumer. Conversely, if the cost is less than the provisional sum amount, the consumer is to receive a credit variation for the difference.

There is a warranty sitting behind the numbers. The regulator's owner and contractor guide to domestic building contracts records that Section 26 of Schedule 1B requires contractors to calculate PC and PS allowances with reasonable care and skill, having regard to all information reasonably available when the contract is entered into, including information about the nature and location of the building site. An allowance is meant to be a genuine estimate, not a low number used to win the job.

The same guide gives a threshold that is worth remembering: contracts which have a high proportion of the total contract price covered by allowances (e.g. 30% or more) carry added risk for owners, especially for owners on a tight budget, because of the level of uncertainty about the final amount payable. The guide's recommendation is to obtain a fixed price for as much of the work as possible.

What this does to your feasibility

If a fifth of your construction contract sits behind allowances, your construction cost is not a number, it is a range, and your whole feasibility inherits that range. Three habits keep it honest:

• Model the allowances as line items, not inside a lump sum, and stress the ones with the widest possible outcome — earthworks and rock first.
• Price your own selections before signing, using current supplier pricing, so the prime cost allowances are tested rather than assumed.
• Keep a contingency that is separate from the allowances. An allowance moving is not a contingency event; it is the contract working as drafted.

A practical pre-signature test

1. Ask for the schedule of allowances as a separate document, with each item, its allowance, its unit and the quantity assumed.
2. Total the allowances and compare them with the contract price. If the proportion is high, say so on the record before you sign.
3. Get the quantity surveyor to benchmark each allowance against current market pricing for your specification.
4. Confirm who selects each prime cost item, by when, and what happens if you select late.
5. Confirm how a credit variation is passed back to you if an allowance is not fully used.
6. Check what the contract says about proving actual costs for an allowance, because not every contract requires the builder to produce invoices.

The common trap

The trap is comparing builders on a single total. One tender looks cheaper because it carries a lower prime cost allowance for the kitchen and a lower provisional sum for earthworks — and the difference is recovered later through variations. The Queensland regulator publishes the contract packs and schedules, including a separate prime cost items schedule and provisional sums schedule. When the contract price is not fixed, the QBCC's contract requirements call for the method of calculating the price, including allowances, to be stated in the schedule; read that statement before comparing totals, because the number you are comparing may not be the number you will pay.

The second trap is discovering the exposure at the moment the invoice arrives. The time to test an allowance is before signature, when it is still a commercial conversation.

What a capable student does next

You are not expected to price a build yourself. Brief a quantity surveyor to test each allowance against the specification and to model the outcome if the allowances move; brief a construction lawyer or contract adviser to explain how the allowances, variations and price-change clauses operate in your contract; and ask your accountant how a credit variation or an extra cost will be treated in your project's numbers. The specialists do the technical assessment and confirm the current position. Your job is to make the exposure visible before the ink is dry.

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Photo: 'Kitchen, Interior of apartment in Brisbane, 2025, 03' by Kgbo, Wikimedia Commons, CC BY-SA 4.0