Allowances, PC items and provisional sums: what each one means in your contract

TL;DR

Prime cost (PC) items cover supply-only products the owner hasn’t selected yet (tapware, appliances, tiles). Provisional sums (PS) cover work where scope and price can’t be fixed at signing (excavation, drainage). An allowance is the dollar estimate written next to each in the contract schedule: it is not the final price, and it excludes your margin. When actual cost exceeds the allowance, you claim the difference plus a 20% margin on that excess (not on the whole amount). When actual cost is less, the owner gets a credit. NSW requires all PC and PS amounts to be itemised separately under the Home Building Regulation 2014. Most blowouts on fixed-price contracts trace to PS items, not PC items, because PS scope is harder to fix before ground is broken.

The three terms and what they do

Builders and clients often use “allowance”, “PC sum” and “provisional sum” interchangeably. They aren’t the same thing.

Term	What it covers	Who selects/decides	Adjusted at
Allowance	The dollar estimate written into the contract table	N/A — it is the number, not the item type	Reconciliation
Prime cost (PC) item	Supply of a specific product the owner hasn’t chosen yet	Owner selects the product	Actual supply cost
Provisional sum (PS) item	A scope of work (supply + labour) that can’t be fully priced at signing	Builder scopes and prices at time of ordering	Actual cost of work

The allowance is the figure that sits inside a PC or PS entry. It is not a separate contract category; it is the estimate. Saying “there’s a $3,000 allowance for tapware” means the PC item for tapware has an allowance of $3,000.

Prime cost items in detail

A PC item is used when the owner will select a specific product after signing: tapware, a cooktop, bathroom vanity, door hardware, floor tiles. The allowance covers supply and delivery only. It does not include installation labour (that belongs in the fixed-price component or a separate PS).

Under HIA residential building contracts (Clause 21.4), each PC item must have an allowance next to it that is a reasonable estimate of supply cost at the time of signing. The allowance excludes the builder’s margin (verified 2026-05-09, HIA, “Prime cost provision sums and residential building contracts for new dwellings”).

If the owner selects something within the allowance, the difference is credited. If they select something above the allowance, the excess (plus margin) is claimed at the next progress stage.

If the owner changes the product type entirely (electric cooktop swapped for gas requiring new rough-in work), that is a variation, not a PC adjustment, because the scope of installation work has changed.

Provisional sum items in detail

A PS item is used when both the product and the installation work are uncertain at signing. Typical examples: excavation (depth and rock conditions unknown), site drainage (design not finalised), a pool (construction method undecided), external paving (materials and areas undefined).

The key distinction: PS involves work (supply + labour). A PC covers supply only. Misusing a PS for supply-only items, or a PC for work items, creates adjustment disputes at reconciliation.

Under HIA residential building contracts (Clause 21.5), each PS must have an allowance that is a reasonable estimate of the full cost of providing the work at the time of signing. That allowance excludes the builder’s margin (verified 2026-05-09, HIA, “Prime cost and provisional sums: don’t forget your margin”).

The allowance number: what it is and isn’t

The allowance entered in the contract table is the builder’s best estimate at the time of signing. It is not a fixed price. It does not include the builder’s margin. A contract with a $15,000 PS for excavation does not mean excavation will cost $15,000 all up: it means the builder estimated $15,000 at signing, excluding their margin on any overage.

The allowance must be reasonable (not artificially low to win the job and recover margin through reconciliation). In NSW, the Home Building Regulation 2014 requires each PC and PS amount to be itemised separately in the contract schedule (verified 2026-05-09, NSW Fair Trading, “Guide to home building contracts”).

How builder margin works on PC and PS items

This is where most builders make errors.

Your margin on the allowance amount is embedded in the fixed contract price. You set your margin at time of signing and fold it into the total. You do not charge it separately at reconciliation.

At reconciliation, margin only applies to the excess (the amount by which actual cost exceeds the allowance). The margin rate defaults to 20% under HIA contracts if no other rate is specified in the contract schedule (verified 2026-05-09, HIA, “Prime cost and provisional sums: don’t forget your margin”).

Common mistake: charging the 20% margin on the full actual cost, not just the excess. This overcharges the owner and creates a dispute.

Example (PC item, tapware):


PC allowance in contract	$2,000
Owner selects tapware costing	$2,600
Excess	$600
Margin on excess (20%)	$120
Additional amount charged to owner	$720

The builder does not charge margin on the $2,000 (that margin was in the original contract price). They charge margin only on the $600 excess.

When actual cost is less than the allowance: The builder credits the owner the full difference. If tapware costs $1,700, the owner gets a $300 credit at the next progress claim. The builder does not retain any of the saving.

Margin disclosure: Builders are not required to disclose their margin percentage to the owner (verified 2026-05-09, HIA). The rate is at the builder’s discretion, subject to whatever is written in the contract schedule. If a rate is stated in the schedule, that rate applies.

State-specific rules

NSW

The Home Building Regulation 2014 (NSW) requires builders to itemise all PC and PS amounts separately in the contract (Schedule 1 of the standard contract form) (verified 2026-05-09, NSW Fair Trading). The contract must also include a warning where the contract price is not fixed or may vary, with that warning placed next to the contract price.

Under the Home Building Act 1989 (NSW), s 7, written contracts are required for residential work over $5,000. The contract must include the terms set out in Schedule 2, which include requirements for work to comply with the Building Code of Australia and all relevant standards (verified 2026-05-09).

QLD

Under the Queensland Building and Construction Commission Act 1991 (QLD) Schedule 1B, domestic building contracts must identify any PC and PS allowances, and where the contract price is not fixed, the method of calculation must be stated in the contract schedule (verified 2026-05-09, QBCC, “Domestic building contracts”).

The contractor must provide the owner with a copy of any invoice, receipt or other document showing the actual cost before presenting a progress claim for a PC or PS item. The builder cannot claim for a PC item or PS work until after incorporation or completion (verified 2026-05-09, QBCC).

VIC and WA

Victoria and WA follow the same HIA contract mechanics (Clauses 21.4, 21.5, 21.6) for PC and PS items. The 20% default margin on excess applies. State-specific legislative disclosure requirements vary: confirm the applicable state edition of your HIA contract is current before signing.

When to use each: a quick guide

Situation	Use
Owner will select tapware after signing	PC item (supply only)
Tile pattern agreed but total area TBC	PS item (supply + labour)
Appliances not yet chosen	PC item (supply only)
Excavation depth unknown (potential rock)	PS item (work, scope uncertain)
Pool not yet designed	PS item (supply + labour, scope uncertain)
Landscaping design incomplete	PS item
Everything scoped and priced	Fixed-price line item (no PC or PS)

The fewer PC and PS items in a contract, the more predictable the final price for both parties. Use PC and PS only where scope or selection is genuinely undetermined at signing.

What can go wrong

Artificially low allowances. A builder sets a $1,000 PC allowance for tapware knowing the owner will likely choose $3,000 fittings. The contract price looks low, but the reconciliation claim is large. In NSW, an unreasonably low allowance may breach the Home Building Regulation’s “reasonable estimate” requirement.
PS used for supply-only items. A tiler quotes $8,000 for floor tiles (supply + install). The builder writes this as a PS but the scope is fully priced. If the tiler’s quote changes, the builder can’t use the PC adjustment mechanism because no allowance was set. Correctly, this should be a fixed-price line item.
Margin charged on the whole amount. Charging 20% on $2,600 actual cost rather than 20% on the $600 excess. A common billing error that generates disputes.
Failing to provide invoices in QLD. Under the QBCC Act, you can’t claim payment for a PC or PS until you provide the owner with evidence of actual cost. Presenting a progress claim without invoices is non-compliant and gives the owner grounds to withhold payment.
Specification changes treated as PC adjustments. If the owner swaps from a standard cooktop to an integrated appliance requiring new cabinetry work, that is a variation, not a PC reconciliation. Issue a formal variation under the contract.
PC items used for work. PC items cover supply only. If you use a PC item to price tiling (supply + labour), you have no mechanism to claim the labour component at reconciliation. Use a PS for any item that includes installation.

References

HIA, “Prime cost provision sums and residential building contracts for new dwellings” (verified 2026-05-09)
HIA, “Prime cost and provisional sums: don’t forget your margin” (verified 2026-05-09)
HIA, “Prime cost and provisional sums for NSW” (verified 2026-05-09)
HIA, “Your contract price explained” (verified 2026-05-09)
NSW Fair Trading, “Home building contracts” (verified 2026-05-09)
QBCC, “Domestic building contracts” (verified 2026-05-09)
Home Building Act 1989 (NSW) (verified 2026-05-09)
Queensland Building and Construction Commission Act 1991 (QLD) (verified 2026-05-09)