Prime costs items (PC’s)
A Prime Cost item is an item that, at the time of the contract, is not selected but is to be selected by the owner. A PC allowance is the cost to the owner for the supply of the item only. A PC does not include any installation cost or the costs of other work related to the PC.
Typical examples of a PC include ‘white goods such as cook-tops & ovens ’, ‘bath-ware’ such as vanities, baths and tap-wear, door & door furniture such as handles and ‘floor coverings’ such as tiles.
There is no legislation in NSW directly regulating the use of PC’s and the HIA contract follows accepted industry practice.
Prime cost item and the contract
Clause 21.4 of the contract requires that ‘each prime cost must have an allowance stated next to it. The allowance is the estimated price to supply the item and does not include an amount for the builder’s margin’.
This means the PC allowance is the estimated cost price for the builder to supply the item to the owner. The price of the PC to the owner is the actual cost price plus the builder’s margin applied to the amount by which the actual cost price exceeds the PC allowance.
Normal prime cost adjustments
PC's are not normally treated as variations. The adjustment calculation should be prepared on an invoice that is to be paid in accordance with Clause 21.7, however there are exceptions as detailed below. The calculation is set out in Clause 21.6 of the contract which provides that: ‘In relation to each prime cost item and provisional sum item if the actual price is:
(a) less than the allowance, the difference is deducted from the contract price; and
(b) more than the allowance, the total of the difference and the builder’s margin applies to that difference is added to the contract price'
Example:
If there is an upgrade or downgrade to a PC and the PC remains within its general specification then the pricing calculation would be as per clause 21.6 of the contract. That is to say if a selected electric cook top, is more expensive than the allowance, then the price to the owner is the actual cost price, plus the builder margin applied to the amount by which the actual cost price exceeds the PC allowance.
When does a PC become a variation
Changing a specification to a new specification is not PC adjustment, it is a variation.
Example:
1. If the owner decided to change the PC described as an ‘electric cook-top’ to a ‘Gas cook-top’ (which included the laying of gas lines and certification of gas installation), then this is no longer something that can be calculated as a PC. It is a variation. The calculation would now include the price of the new cook top plus any installation costs less the PC allowance.
2. The contract has a PC for tiles with standard laying. The owner decides to purchase different tiles from the specifications, which require different laying and bonding requirements, This is a variation as to the scope of work. The actual tile price may be calculated as a PC adjustment but in addition a variation is required due to the additional work.
Provisional sums items (PS’s)
PS’s are often confused with PC’s. PS’s have a much wider application and are used where there is a mixture of items and labour (installation). A PS is not to be used where the relevant item is for supply only.
Examples of PS’s:
Pools where the owner has not decided on the construction method. A pergola where the owner has not decided on the construction method or size. Paths and driveways where the materials, shape, size and finish has not been decided. Kitchen with white goods and tiling. Tile and carpet and other floor covering and light fitting with fans and security lights which are not specified.
Provisional sums and the contract
Clause 21.5 of the contract provides that ‘each provisional sum item must have an allowance stated next to it. The allowance is the estimated price of providing the work and does not include an amount for the builder’s margin’.
The essential difference between a PS and a PC is that PS’s involved work, where PC’s are items only. This means the PS allowance is the estimated cost price for the builder to do the work (item plus labour) for the owner. The price of the PS to the owner is the actual cost price plus the builder’s margin applied to the amount by which the actual cost price exceeds the PS allowance.
Normal provisional sum adjustments
PS's are not treated as variations. The adjustment calculation should be prepared on an invoice that is to be paid in accordance with Clause 21.7.
The calculation is set out in clause 21.6 of the contract which provides that:
‘In relation to each prime cost item and provisional sum item if the actual price is: (b) less than the allowance, the difference is deducted from the contract price; and (c) more than the allowance, the total of the difference and the builder’s margin applies to that difference is added to the contract price ‘
PS’s are normally not variations
The owner can choose whatever work they want within the range of work contemplated by the PS description. Therefore, unlike a PC item, where there is a change to the scope of work, there is no need to do a variation.
Example:
The contract contains a PS for “the supply and installation of an kitchen cook-top”. If the owner selects a gas cook-top (which includes the laying of gas lines and certification of gas installation), then all the costs are calculated as a PS and if there is a positive difference in the actual cost price over the allowance, then the builders margin is added to that difference.
In summary if you are in dispute with an owner over PC and PS allowances or calculations, the HIA recommends you contact HIA IR & Legal Department or your Solicitor for advice on your particular circumstances.
For more information call the HIA InfoCentre on 1300 650 620.
DISCLAIMER – the above is intended to provide general information in summary form. The contents do not constitute specific adive and should not be relied upon as such. Formal specific advice should be sought by members with respect to particular matters before taking action.