Provisional sum items: scope-undefined work in residential building contracts

TL;DR

A provisional sum (PS) covers work where both scope and price cannot be fixed at signing: earthworks to an unknown depth, site drainage on an undesigned layout, a pool with no construction method decided. The allowance in the contract is the builder’s best estimate excluding margin; margin (typically 20%) applies only to any excess, not the full actual cost. PS adjustments run through progress claims, not formal variations. In VIC, setting a PS below the reasonable cost of the work is a statutory offence (35 penalty units). In QLD, the builder must hand over invoices before claiming any PS payment. PS blowouts are the single biggest source of cost disputes on residential builds: scope uncertainty at signing flows directly to surprise claims at reconciliation.

What a provisional sum is

A provisional sum (PS) is an allowance in the contract price for a defined body of work where the builder cannot give a firm price at the time of signing because the full scope is not yet known.

The key word is work. A PS covers both supply and installation (labour), not supply alone. This distinguishes it from a prime cost (PC) item, which covers supply of a product only and does not include installation.

Common examples of legitimate PS items:

Excavation and earthworks: depth and ground conditions unknown until the excavator is in the ground (rock, fill, groundwater)
Rock removal: presence and extent impossible to confirm from a surface inspection
Site drainage: design not finalised at contract signing
Retaining walls: extent of works depends on final survey, cut depth, or engineering specification not yet received
Pool construction: construction method or size not decided
External paving: materials, areas, and finish not specified at signing
Site services: connections to existing mains where depth and condition of existing services are unknown

If the scope can be fully defined and priced at signing, it is not a PS: it is a fixed-price line item. The fewer PS items in a contract, the more predictable the final cost for both parties.

How PS differs from PC items

	Prime cost item (PC)	Provisional sum (PS)
Covers	Supply and delivery of a product	Supply, delivery, and installation (the full scope of work)
Scope at signing	Product not selected, but installation is known and priced	Both product and installation scope uncertain
Typical examples	Tapware, appliances, floor tiles (supply only)	Earthworks, excavation, pool, site drainage
Owner involvement	Owner selects the product	Builder prices and executes the work
Installation cost	Separate fixed-price or PS item	Included in the PS allowance
Misuse risk	Covering labour in a PC (then claiming labour separately)	Using a PS for work that could be fully priced at signing

Misclassifying PC work as a PS (or vice versa) is a common source of disputes. If the builder calls a tiling job a PS but prices it as a fixed-price item elsewhere in the schedule, the reconciliation mechanism creates confusion. Confirm the classification at signing.

How the PS allowance works

Under HIA residential building contracts, each PS must have an allowance stated next to it in the contract schedule (Clause 21.5). The allowance is the builder’s best estimate of the full cost of providing the work, excluding the builder’s margin (verified 2026-05-09: HIA, Prime cost and provisional sums for NSW).

The builder’s margin on the allowance is embedded in the fixed contract price at signing, not charged separately at reconciliation. At reconciliation, margin is applied only to any excess.

PS items are listed in Schedule 7 of the HIA NSW Residential Building Contract for New Dwellings (and equivalent schedules in other state editions). The schedule records the item description, the allowance amount, and the adjustment once the actual cost is known.

How the builder’s margin works on PS items

The rule is the same as for PC items: margin applies only to the excess, not to the full actual cost.

Margin on excess only. If actual cost exceeds the allowance, the builder claims the excess plus their margin applied to that excess. The default margin rate under HIA contracts is 20% where no other rate is stated in the contract schedule (verified 2026-05-09: HIA, Prime cost and provisional sums: don’t forget your margin).

No margin on a credit. If actual cost is below the allowance, the owner receives a credit for the full difference. The builder does not retain any saving.

Worked example (HIA contract, 20% margin rate)

Scenario	Allowance	Actual cost	Adjustment
Cost exceeds allowance	$18,000	$23,000	+$5,000 excess + $1,000 margin = +$6,000
Cost below allowance	$18,000	$14,500	Credit of $3,500 to owner
Cost equals allowance	$18,000	$18,000	No adjustment

Common mistake. Charging 20% on the full actual cost ($23,000 in the example above) instead of 20% on the excess ($5,000). That overcharges the owner by $3,600 and is a specific error flagged by HIA. Builders who do this routinely face disputed progress claims.

Reconciliation: when and how

PS item adjustments are processed through progress claims, not through the variation procedure. A separate variation is not required: when the actual cost of PS work is known (after the work is complete), the builder includes the adjustment in the next progress payment claim (verified 2026-05-09: HIA, Prime cost and provisional sums for NSW).

This means the builder cannot claim for a PS item until after the work is finished. Presenting a progress claim for PS work before it is complete is non-compliant and in QLD is an express breach of the QBCC Act.

Adjustments are supported by invoices or other evidence showing actual cost.

Clause 21.6 governs the adjustment calculation; Clause 21.7 deals with payment of the adjustment within the progress claim cycle.

Statutory obligations by state

VIC: statutory floor and warranty

The Domestic Building Contracts Act 1995 (VIC) imposes two requirements:

Section 20: The builder warrants that any PS included in the contract has been calculated with reasonable care and skill, having regard to all information reasonably available at the date the contract was made.
Section 21: A PS must not be less than the reasonable cost of carrying out the work to which it relates (penalty: 35 penalty units) (verified 2026-05-09: DBCA 1995 s 21).

Setting a PS artificially low to reduce the apparent contract price is a statutory offence in VIC, not just a commercial dispute. The warranty in s 20 is implied into every major domestic building contract.

QLD: reasonable care warranty and invoice obligation

Under Schedule 1B of the Queensland Building and Construction Commission Act 1991, for regulated domestic building contracts:

The builder warrants that every PS has been calculated with reasonable care and skill, having regard to all information reasonably available when the contract is entered into, including information about the nature and location of the site.
Before or when presenting a progress claim for a PS item, the builder must provide the owner with a copy of any invoice, receipt, or other document showing the actual cost. The builder cannot seek payment for PS work until the progress claim following completion of the work (verified 2026-05-09: QBCC Act Schedule 1B).

This is not just contractual. The invoice obligation is statutory. A QLD builder who claims PS payment without providing invoices is in breach of the QBCC Act, not merely in breach of contract.

NSW: itemisation and consumer warning

Under the Home Building Regulation 2014 (NSW), builders must itemise all PC and PS amounts separately in the contract schedule. Where the contract price is not fixed, the contract must contain a warning and an explanation of how the price may vary (verified 2026-05-09: NSW Fair Trading, Guide to home building contracts).

The Home Building Act 1989 (NSW) requires written contracts for residential work over $5,000 (incl. GST). Under the HIA NSW contract, PS allowances must reflect the builder’s reasonable estimate, and Schedule 7 records all PS entries.

Unlike VIC, NSW does not impose a separate statutory minimum on PS amounts. But an allowance set below a reasonable estimate exposes the builder to disputes under the contract’s general terms and Consumer and Fair Trading Act obligations.

What can go wrong

PS allowances set too low at signing. Either to win the job at a lower headline contract price, or through genuine underestimation before site investigation is complete. The result: a stream of excess claims above the contract sum that the client was not expecting. On residential new builds, PS blowouts are the most common source of cost disputes. A geotechnical report before signing dramatically reduces this risk on sites with uncertain ground conditions.

Scope creep inside a PS without a written variation. If the builder extends the scope of PS work beyond what was contemplated at signing (for example, extending a retaining wall not covered by the original PS description), the additional work is a variation, not a PS adjustment. The owner needs a variation notice.

Margin charged on the full actual cost. Applying 20% to the total actual cost, not just the excess, overcharges the owner. This is the most common PS billing error and is a specific point flagged by HIA. On a large PS (e.g., $50,000 earthworks), the overcharge can be $8,000 or more.

Work not complete before claiming. PS payment cannot be claimed until the work is finished and invoiced. In QLD, this is statutory. Presenting a progress claim for a PS item before completion is non-compliant.

No invoices provided in QLD. The QBCC Act requires the builder to hand over invoices before claiming PS payment. Building without this documentation leaves the claim exposed if the owner disputes the amount.

Latent conditions inside a PS scope. Rock conditions or service depths worse than the PS estimate. The builder has two options: if the PS description covers the discovered condition, it adjusts at actual cost. If the condition is genuinely outside the PS description, a formal variation may be warranted. Get the classification right before the work starts.

PS used for supply-only items. A PC item covers supply; a PS covers supply and installation. If the builder uses a PS for a supply-only item (e.g., appliances), the reconciliation mechanism becomes ambiguous and can create double-charging when the installation is separately priced.

Owner disputes the PS classification. If the owner believes a PS item should have been a fixed-price scope, they may argue the builder accepted the risk. Contracts that clearly describe the scope and conditions of uncertainty in the PS entry are harder to dispute.

References

HIA, Prime cost and provisional sums for NSW (verified 2026-05-09)
HIA, Prime cost and provisional sums: don’t forget your margin (verified 2026-05-09)
HIA, Prime cost provision sums and residential building contracts for new dwellings (verified 2026-05-09)
NSW Fair Trading, Guide to home building contracts (verified 2026-05-09)
Domestic Building Contracts Act 1995 (VIC), ss 20-21 (verified 2026-05-09)
Queensland Building and Construction Commission Act 1991 (QLD), Sch 1B (verified 2026-05-09)
Home Building Act 1989 (NSW) (verified 2026-05-09)
Home Building Regulation 2014 (NSW) (verified 2026-05-09)