Provisional sums and prime cost items, explained

Two line items appear in almost every building quote in New Zealand, and most homeowners sign contracts without knowing what they do. They are called provisional sums and prime cost items. Between them, they decide how much of your fixed price is actually fixed.

Neither is a trick. Both exist for honest reasons, and a quote with none of them at all can be a warning sign in its own right. But they are the mechanism by which a signed number moves, so you should understand them before you sign, not when the adjustment invoice arrives.

What each one is

A provisional sum is an allowance for a chunk of work that cannot be accurately priced when the contract is signed. Ground works are the classic example. Until the digger is in the ground, nobody knows exactly what is down there, so the builder allows a figure based on experience and the contract says the real cost will replace it. It covers labour and materials for that piece of work.

A prime cost item, often written as a PC sum, is an allowance for the supply of something you have not chosen yet. Tapware, tiles, light fittings, appliances, sometimes the kitchen itself. The labour to install it is usually inside the fixed price. The allowance covers the thing itself, and when you choose the actual product, the allowance is adjusted up or down to match.

The practical difference matters. A provisional sum moves because of what the site turns out to be. A prime cost item moves because of what you decide. One is the ground's fault, the other is yours, and you have far more control over the second than the first.

Why they turn a fixed price into an estimate

Here is the mechanics. When the real cost of a provisional sum or PC item comes in above the allowance, you pay the difference, and in most standard contracts the builder adds their margin to the increase. When it comes in under, the saving is credited back, though margin treatment on savings varies between contract forms. So every allowance in the document is a place where the bottom line can move, in either direction, with a bias you should understand before signing.

A worked example makes it concrete. Say the contract carries a PC allowance for floor tiles at a mid-range level. You fall for a tile that costs half as much again. The supply difference is added to the contract price, the builder's margin is applied to the increase, and if the fancy tile is also slower to lay, the extra labour can arrive as a variation on top. None of that is sharp practice. All of it was decided the day you chose the tile, which is why choosing before you sign, wherever you can, is worth the effort.

It also helps to know which allowances deserve to exist. Ground works, drainage in unknown soil, and anything hidden inside an existing building are honest provisional territory: nobody can price what nobody can see, which is why on renovations we investigate first and shrink the list rather than pretend. Selections are different. Tiles, tapware, lights and appliances are only unpriced because a decision has not been made yet, and every one of them can become a fixed line before signing if you are willing to decide. That gives you a rule of thumb: be patient with allowances for the unknowable, and impatient with allowances for the undecided.

This creates a quiet incentive problem. A builder who wants to win the job on price can set allowances low. The quote looks sharp, the contract gets signed, and the adjustments arrive later, one at a time, each individually reasonable. Nothing in that sequence is necessarily dishonest. Low allowances can be genuine optimism. But the effect on you is the same either way: the number you compared quotes on was not the number you paid.

The questions that flush them out

You do not need to be technical to protect yourself here. You need five questions, asked before you sign.

• How many provisional sums and PC items are in this quote, and can you list them on one page? If the builder cannot produce that page quickly, the quote has not been assembled carefully.
• How was each allowance set? 'Based on what you showed me you like' is a good answer. 'Standard allowance' is a weaker one, because standard for whom?
• What happens when the actual cost is higher or lower than the allowance? Get the margin treatment in plain words, both directions.
• Which of these can we turn into fixed prices before signing? Most PC items exist only because a decision has not been made. Make the decision, and the allowance becomes a price.
• Which of these genuinely cannot be fixed, and why? A good builder will defend the ones that should stay provisional, like ground works, and that defence is worth hearing.

That last exchange is the useful one. Our own approach is to shrink the provisional list as far as the job allows before contract, which on renovations means paid investigation up front: opening up, looking, and pricing what we can actually see. What remains provisional after that is genuinely unknowable, and we would rather label it honestly than bury it in a confident number.

Allowances are not the enemy. Unexamined allowances are. Ten minutes with a highlighter and the five questions above will tell you more about how your project will actually go than anything on the builder's website.