Wondering what is the difference between prime cost and provisional sum? Here is a full explanation of the difference between PC Sums and Provisional Sums in the New Zealand construction industry:
PC Sums, which stands for “Provisional Costs,” and “Provisional Sums” are two terms often used in construction contracts. It’s important to know the difference between these two terms because they mean different things and have different effects on a building project.
PC Sums are amounts of money that are included in a construction contract for a specific item or work that has not yet been fully designed or priced. The point of a PC Sum is to let the contractor move forward with the work, even if the final cost of the item or work is not yet known. The contractor is responsible for finishing the work for the amount listed in the PC Sum. The contractor is also responsible for any extra costs that may come up.
Contractor Carrying out Works
Provisional Sums, on the other hand, are amounts of money that are included in a construction contract for a specific item or work that is not yet known or defined. The purpose of a Provisional Sum is to let the contractor do the work, even if the final cost of the item or work is not yet known. The contractor is responsible for finishing the work for the amount listed in the Provisional Sum.
The contractor is also responsible for any extra costs that may come up.
It is important to remember that both PC Sums and Provisional Sums are estimates, and the final cost of the item or work may be different from the amount in the contract. It is the contractor’s job to give an accurate estimate of how much the job will cost and to make sure that the job is done within the budget set out in the contract.
The Construction Contracts Act of 2002 in New Zealand sets rules for how PC Sums and Provisional Sums can be used. Under this law, PC Sums and Provisional Sums must be clearly defined in the construction contract and must be reasonable estimates of how much the work will cost in the end. The Act also says that the contractor has to keep the client up to date on the work’s progress and any changes to the cost estimates on a regular basis.
The Main Difference
The main difference between PC Sums and Provisional Sums is how much detail and information is available when the construction contract is signed. Provisional Sums are for an item or work that hasn’t been fully designed or priced yet, while PC Sums are for an item or work that hasn’t been known or defined yet. PC Sums and Provisional Sums are both estimates that let the contractor start working even though the final cost isn’t known yet.
One of the best things about PC Sums and Provisional Sums is that they let the construction project move forward even if all the details and costs are not yet known. This can be especially helpful if the design of the project is still being worked on or if the costs of materials and labour are hard to predict.
But there are some possible risks and downsides to using PC Sums and Provisional Sums as well. One of the biggest risks is that the work may end up costing more than what was estimated in the contract. This can cause a fight between the client and the contractor over the extra costs, which can slow down the project and cost more money.
Minimize Risk
Both the client and the contractor need to clearly communicate and agree on the terms and conditions of the construction contract, such as the use of PC Sums and Provisional Sums, to reduce the chance of disputes and cost overruns. This can help make sure the project is done on time and on budget, and it can also help the client and the contractor build a strong relationship.
PC Sum Example
Here are ten examples of PC Sum items that can be part of a construction contract:
- Tiles: PC Sums can be used to pay for the cost of tiles for floors, walls, and other surfaces.
- Sanitary items: These can include toilets, sinks, and showers, among other things.
- Light fixtures: PC Sums can be used to pay for light fixtures like ceiling lights, wall sconces, and other types of lighting.
- Doors: PC Sums may help pay for the cost of doors, both inside and outside.
- Windows: You can use PC Sums to pay for windows, including the frames and glass.
- Plumbing: The materials and labour costs for plumbing can be added to the PC Sum.
- Electrical work: This could include the cost of wiring, outlets, and other electrical parts.
- Cabinets: PC Sums can be used to pay for cabinets in the kitchen, bathroom, and other places.
- Countertops: You can use a PC Sum to include the cost of countertops, including the cost of materials and installation.
- Flooring: PC Sums can be used to pay for the cost of tile, wood, or carpet for the floor.
Provisional Sum Example
Here are ten examples of Provisional Sums that can be part of a construction contract. Note that this only applies if we aren’t working on a contract with a fixed price.
- Demolition: The cost of tearing down buildings or other features that are already there can be added to the Provisional Sum.
- Excavation: The Provisional Sum can include the cost of excavation work, such as digging foundations or trenches.
- Concrete work: This may include the cost of pouring concrete foundations or slabs, as well as any other materials and labour needed.
- Structural steel: The Provisional Sum could include the cost of structural steel beams and other parts.
- Roof: The cost of materials and labour for the roof can be added to the Provisional Sum.
- Finishes on the outside: This could include the cost of siding, brickwork, or other types of finishes on the outside.
- Interior finishes: The cost of interior finishes, like plastering, drywall, and painting, can be added as a Provisional Sum.
- Landscaping: The cost of landscaping work, such as grading, planting, and watering, can be added as a Provisional Sum.
- Mechanical services: This could include the cost of installing systems for heating, cooling, and ventilation.
- Electrical services: The Provisional Sum can include the cost of installing electrical systems, including wiring and outlets.
Final Thoughts
Here’s a quick summary of PC Sums that’s easy to read. Provisional costs and provisional sums are two terms that are often used in the construction industry to let contractors keep working even if they don’t know how much something will cost in the end. Here is a summary of the main differences between these two words:
- PC Sums are amounts of money included in a construction contract for a specific item or work that has not yet been fully designed or priced.
- Provisional Sums are amounts of money included in a construction contract for an item or work that is not yet known or defined.
- Both PC Sums and Provisional Sums are estimates, and the final cost of the work may be different from the amount included in the contract.
- The main difference between PC Sums and Provisional Sums is how much detail and information is available when the construction contract is signed.
- Provisional Sums are for an item or work that hasn’t been fully designed or priced yet, while PC Sums are for an item or work that hasn’t been known or defined yet.
Managing Expectations
The contractor needs to explain to the client what the difference is between PC Sums and Provisional Sums for a few reasons:
Understand the terms
The contractor can help the client understand the terms and conditions of the construction contract by explaining the difference between PC Sums and Provisional Sums.
This can help keep the client and contractor from misunderstanding each other and getting into a fight.
Setting expectations
The contractor can help the client understand the possible risks and unknowns of the construction project by explaining how PC Sums and Provisional Sums work. This can help the client set reasonable goals for how much the project will cost and how long it will take.
Managing costs
The contractor can help the client understand how costs are being managed and distributed in the project by explaining the difference between PC Sums and Provisional Sums. This can help the client make decisions about changes or additions to the project that are well-informed, and it can also help keep the budget from going over or prevent arguments.
Overall, it’s important for the contractor to explain to the client what the difference is between PC Sums and Provisional Sums. This will help build a trusting and cooperative relationship and make sure the construction project is finished successfully.
Conclusion
Knowing The Difference Between Price Cost & Provisional Sum
Understanding the distinction between a Provisional Sum and a Prime Cost Sum frequently causes confusion (PC Sum). They both serve the same purpose, which is to give estimates produced for certain expenditures in the lack of precise statistics.
A PC Sum is intended to cover the expense of particular things that the client may not have yet decided to purchase. A common example is the PC Sum allocation for the supply of floor tiles. This lets your client know that there is money in the budget to cover an acceptable specification of tiles, but if they choose something more or less expensive than the permitted amount, a variation will apply. Make sure to calculate labor and attendance on subcontractors on a separate line item whenever you use them because these are not included in PC amounts.
A provisional sum has more to do with a vague definition or scope of work; pricing earthworks is a fantastic example of this. It makes more sense to allow a decent provisional sum for this trade, or at least the excavation component of the deal, due to the potential unknowns because it is common to just not know what might be hiding beneath the surface.
Managing Client Expectations
One thing I must note is that when there are a few line items of PC and PS amounts, it is crucial to control your client’s expectations regarding the overall build cost. If you are upfront and honest with them at the outset, not just describing the differences between the two but also promising to inform them as soon as there are actual expenses that can be used to offset these numbers, they will be grateful. It will prevent SO MANY HEADACHES down the road to keep the client fully informed on the status of the running total, including any variations to these numbers.
Another piece of advice is to make sure your customer carefully compares these allowances among the tenderers if they are shopping around for builders. Although it is the end user’s obligation to ensure that they completely complete their tender analysis (what homeowner understands how to do that?! ), below is a small rule of behavior around them. The last thing you want is to lose the job because the other group put down a PC amount of $20k for a kitchen in a house with an architectural design while you put down $60k since you were aware that was more reasonable.
Be extremely careful to specify EXACTLY what that provisional sum allows for when adding it to your pricing. If this is not stated clearly, you may become involved in a dispute. and a client could decline your variation if they think the amount allowed is sufficient. The less disagreements you are likely to have, the more prescriptive you may be. Funny how words can matter so much in a pricing exercise that is primarily based on numbers!
Last but not least, remember to subtract the original authorized sum from any positive changes you make to Provisional Sums in your variations, then add the updated dollar amount and include a margin for the difference between the two.
If you have any questions about anything, just let me know!
