Knowing the difference
Confusion often arises when deciphering the difference between a Provisional Sum, and a Prime Cost Sum (PC Sum). Effectively, they both exist to provide estimates made for certain costs in the absence of exact figures.
A PC Sum is designed to cover the cost of specific items that may not yet have been chosen by the client, a perfect example is you will often see a PC sum allowance for the supply of floor tiles. This allows your client to know there is money within the budget for a reasonable spec of tiles supply, however, if they choose something more expensive or less expensive than the allowed sum, then a variation will apply. PC sums do not include labor or attendance upon subcontractors, so make sure when you use these that they are calculated on a separate line item.
A provisional sum is more to do with an unclear specification or area of work, a great example of this is when pricing earthworks. Often due to the nature of simply not knowing what may be lurking beneath the surface, it makes more sense to allow a reasonable provisional sum for this trade, or at least the excavation portion of the trade due to the potential unknowns.
Managing your client's expectations
One thing I have to say is it is really important to manage your client’s expectations around total build cost when there are a few line items of PC and PS sums. If you are open and honest at the beginning, not only explaining the difference between the two but also advising that you will let them know as soon as there are actual costs that can be applied as a replacement to these sums. Keeping the client fully up to date in regard to how the running total is going including the variations to these sums will save SO MANY HEADACHES later on down the track.
Another little nugget of advice, if your client is shopping around builders, make sure you ask them to carefully check these allowances across the tenderers. Here is a bit of a code of conduct around these, despite it being the end user’s responsibility to make sure they complete their tender analysis thoroughly (what homeowner knows how to do that?!?). The last thing you want is to miss out on the job because the other crowd used a PC sum of $20k for an architecturally designed homes’ kitchen, while you put in $60k because you knew that was more realistic…..
When adding provisional sums to your pricing… be super careful that you have specified EXACTLY what that provisional sum allows for. You can get caught up with a dispute if this is not laid out clearly… and a client may believe that the sum allowed is enough and may refuse your variation. The more prescriptive you can be, the less arguments you are likely to have. Isn’t it funny that words can be so important in a pricing exercise mostly made up out of numbers!!!
One last thing….. when making positive adjustments to Provisional Sums in your variations, take the original allowed sum and deduct it, add in the revised dollar value, and include a margin on the difference between the two.
Any questions on all of this – you know where I am!