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Prime Cost and Provisional Sum Items - Don't forget your margin
Prime cost (PC) items are fixtures and fittings or individual articles and appliances that the owner is to select after the signing of the contract such as a kitchen vanity or tapware. Provisional sum (PS) items are work that the builder cannot provide a definite price for at the time of signing the contract. This might include excavation, rock removal or labour for tiling.
At the time of filling out the contract, an allowance for a PC or PS Item will be entered into the table. This allowance must be a reasonable estimate of what the builder believes the item or work will cost, based on the information that the builder has at the time of entering into the contract. The allowance in the table does not include the builder’s margin.
Where is the margin?
What the builder must do is ensure that the margin to be applied to the allowance for that item is included in the contract price before signing the contract. The margin will then be received at each progress stage within the progress claim.
The builder does not have to disclose this margin to the owner.
A common mistake that builders make is to charge the owner the “20% margin on excess” on the whole amount of the actual cost of a PC or PS Item after they have completed the work. This is incorrect and may lead to an owner refusing to pay the margin.
What if the PC or PS Item costs more than the allowance in the table?
If the actual cost of an item exceeds what the builder has allowed for it, under the HIA Contract the builder can claim the actual cost of the item, the excess, plus a margin of 20% on that excess. This amount will be claimed at the next progress stage and the builder must ensure that the owner is given evidence of the cost of the item.
Remember that the margin on the original allowance will already be received by the builder at each progress stage.
What if the PC or PS Item costs less than the allowance in the table?
In this scenario, the builder simply credits the difference between the actual cost of the item and the allowance to the owner in the next progress claim.
How to remove a PC or PS Item from the contract.
If an owner requests that the builder remove or omit a PC or PS item from the contract, the builder must ensure that this variation is put into writing. The amount of the allowance as shown in the PC and PS Item table is to be credited back to the owner in the next progress claim.
The builder does not have to credit the builder’s margin for that item back to the owner.
Builder must give evidence of the cost of the PC or PS Item
The builder is required to provide the owner with evidence of the cost of the PC or PS item when requesting payment for the item.
Examples of Prime Cost Items and Provisional Sum Calculations
If the allowance in schedule 3 is $1100 (including GST) and the percentage on excess is 20%
- Price to supply the item or provide the work is $1100 (including GST) then:
No adjustment to contract price - Price to supply the item or provide the work is $990 then:
Deduction is = $1100 - $990
= $110 (deduction being GST inclusive) - Price to supply the item or provide the work is $1320 (including GST) then:
Addition is = ($1320-$1100) + 20% excess cost
= $220 + 20%
= $220 + $44
= $264 (addition being GST inclusive)
Foundations Data
Foundations data is the information (for example soil testing) relevant to a building site that a building contractor requires in order to prepare a footing and/or concrete slab design for the building site, and also to establish the cost of the foundations component of the works.
Failure to obtain foundations data prior to entering into a contract is an offence under the Queensland Building and Construction Commission Act (QBCC Act) unless an exemption applies. The exemption applies if you:
- Are not lawfully entitled to enter the land at the building site to obtain the foundations data before entering into the contract; and
- The contract guarantees that there will be no increase in the contract price.
If you have obtained foundations data before entering into your contract you can list excavation (or earthworks) as a provisional sum in which case the above rules for provisional sums apply.
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