When it comes to construction projects, there are various types of contracts that need to be signed and followed to ensure smooth and successful completion. One such contract provision is the provisional sum, which is an estimate of the anticipated costs that may arise during a project. In this article, we will provide a comprehensive overview of the provisional sum, including its purpose, importance, and how it is calculated.
When it comes to any kind of building or renovation job, there’s always uncertainty; something unexpected could arise at any time during the course of work. This is where Provisional Sums come into play – they provide flexibility for unforeseen expenses and help protect against potential losses due to price changes or additional unanticipated costs.
Provisional Sum Meaning
What is the meaning of provisional sum? Simply, a provisional sum is a money provision / contractual allowance for costs that are difficult to estimate in advance. In a project, there may be some items that are not finalized and detailed at the time of tender. In this type of situation, cost consultants may allow some money provisions into the tender (Bid) to cover the costs of such items.
It allows for the contractor to be paid an agreed amount, regardless of any variations between actual and estimated costs. Provisional sums can also apply to certain additional works or materials if they arise during the course of construction. The main difference between prime cost sums (PC Sums) and provisional sums lies in how each is treated by contract administrators when carrying out final accounts calculations at the completion stage. Prime cost sums are fixed amounts used to cover specific items of work, such as labor or materials, while provisional sums provide an amount based on an approximate estimation of potential costs associated with future events or activities.
Defined and Undefined Provisional Sum
Provisional sums also referred to as contingencies, are estimated amounts that will be paid for materials or services not specifically itemized in the contract documents. The difference between defined provisional sums and undefined provisional sums is important to understand when entering into a construction contract.
Moreover, a provisional sum is a sum provided for either defined works or undefined work.
- Defined Provisional Sum: When the work is not completely designed at the time of issuing the tender document but sufficient information/details can be provided. Using sufficient information, the contractor is expected to make an allowance for the Provisional item in their initial programming, designing, and tender pricing.
- Undefined Provisional Sum: On the other hand, an Undefined Provisional Sum means less described or such information cannot be provided in the tender document. So, the contractor can not make an allowance for the work in their initial programming, designing, and tender pricing. Therefore, the contractor cannot estimate the Preliminary cost and Time required for the works related to the undefined provisional sum.
If it is fully detailed and decided to execute such items in the project, then that allowed money provision can use to complete the item. Since this money provision is a tentative allocation, the understanding of the provision sum is to pay the actual cost, and this actual cost may be higher or lower than the allowed money provision. In such cases, the contractor is required to provide all the relevant cost details with supportive documents and justify this actual cost.
Provisional Sum Definition
A provisional sum, or pc sum as it is more commonly known, is an amount included in a construction contract by the employer. It covers any works that are not specifically defined in the agreement. This could be due to uncertainty of quantities and/or costs of materials required for the project.
The Term “Provisional sum” can be defined as an amount or a sum given for the works that cannot be predicted, defined, or described in detail at the time of the tender document are issued.
Provisional Sums Term in FIDIC
According to FIDIC Red book – 2nd edition 2017 – Sub Clause 13.4
Provisional sum is a sum specified in the Contract by the The Employer for Supply of Material, Plant or services or for the carrying out of any part of the Works.
Advantages of Provisional Sums
Allowing of provisional sums are helping to protect the client from unexpected cost overruns because if the item is detailed and decided to execute, there is some allocated money to cover the cost of such works.
Secondly, by allowing the Provisional sums at the tendering stage, it will indicate the bidders; there are some items that are to be detailed and executed within the project. And also, it will provide an indication of the expected size of the intended works. Now since it has been a part of the original tender document and contract, it will prevent the contractor from claiming a variation or extra work for such items.
If a Provisional Sum is not allowed in the Tender or Contract for expected works, then it will be treated as a Variation to the Contract if such an item is to be executed within the Contract.
Allowing Provisional Sums, it can exclude extra overhead costs to the client because if these are to be tendered separately, all tendering selection costs will be added costs to the client.
Another advantage of allowing Provisional Sums on uncertain items is we can exclude those items from the contract without a claim from the contractor.
Provisional Sum Example
Provisional sum items shall be added in a separate bill called Provisional sums or Prime cost and Provisional sums in the Bills of Quantities.
- Construction of the below-ground drainage system. (When there are no tender drawings)
- Landscaping works
- Road marking for car park
Quantity column and rate columns are usually not filled in this bill section. In the unit column, “Pro Sum” or “Item” can be used as a unit. In the amount column, the consultant will add a rounded provisional amount based on the experience or previous records of projects.
Frequently Asked Questions
What is Provisional Sum (PS)?
“Provisional Sum” means an amount of money mentioned in a contract document by the Employer. This money is set aside for future work when the design is not fully finished when the contract is signed or when the work requires a specialist subcontractor to complete it.
What Are The Three Types Of Provisional Sums?
Provisional sums are funds that are set aside in a construction contract to cover work that has not yet been fully specified or defined. It can be categorized into three types.
- Client Provisional Sums: In this type, the client provides a sum of money that will be added to the contract price to cover work that has not been fully defined. This allows for more flexibility in the design and scope of the project.
- Client (Prime Cost) PC Sums: In this type, the client provides a sum of money that will be added to the contract price to cover work that has not been fully defined. Generally, the client appoints a specific subcontractor (nominated sub-contractor) to carry out the work. The Main contractor will also add a mark-up to this sum to cover their overhead costs and profit. This type is usually used when the client wants to avoid the risk of the contractor underestimating the cost of the work.
- Contractor Provisional Sums: In this type, the contractor sets aside a sum of money for work that they are unsure how to price accurately. This type is typically used when the contractor is uncertain of the cost of a specific item of work, or when the scope of the work has not been fully defined.
How to deal with the preliminaries and construction program for the Provisional Sum?
Preliminaries in a Bill of Quantities (BOQ) are the costs incurred by the contractor that cannot be directly attributed to a specific measured work, including the expenses involved in managing a project, providing general plant and equipment, site staff, facilities, site-based services, and other items that cannot be included in the unit rate of a particular measured work. Preliminaries can be categorized as cost-related & time-related items.
Tenderers / Bidders can estimate the cost and time required for the provisional sum work in their tender submission for a Defined Provisional Sum as the nature of these works is known. On the Other hand, Tenderers do not need to estimate the cost and time for preliminary items for Undefined Provisional Sum work in their tender submission.
However, The valuation for executed Undefined Provisional Sum work should include direct expenses, preliminary costs, overheads, and profit. If these works affect the critical path in the construction program, the project duration should be adjusted, and the contractor can make a claim for prolongation costs.
Provisional sums are important in construction contracts as they allow for flexibility to cover potential costs that cannot be accurately estimated at the time of contract signing. Both parties should understand their purpose and calculation to ensure successful project completion without significant delays or additional costs.