Contract sum
Contract sum is the total contracted price in a building contract. Check inclusions: GST, PC sums, PS items. First of the big-money clauses to read before signing.
Ask Chalkline about this →The contract sum is the total contracted price stated in a building contract, representing the headline amount the owner agrees to pay the builder for the works defined in the contract documents. It is the single most important figure in any residential building contract and the first big-money clause to read carefully. The contract sum’s apparent simplicity hides several traps: whether it is inclusive or exclusive of GST, whether it includes PC sums (prime cost items) and PS items (provisional sums), and how it varies under the contract’s variations process. Verified per standard residential contract practice (2026-05-16).
The contract sum’s role across contract types:
| Contract type | Contract sum represents |
|---|---|
| Lump sum (fixed price) | A firm price the builder commits to; variations adjust it but only with owner’s signed agreement |
| Cost plus | Estimated total; actual cost is the sum of documented expenses + builder’s margin; the contract sum is an estimate, not a cap |
| Guaranteed maximum price (GMP) | The maximum the owner pays; if costs exceed GMP, the builder absorbs the excess |
| Schedule of rates | A rate per unit; contract sum is the expected total based on volume |
| Design and construct | Includes design fees; otherwise lump sum |
Mandatory inclusions and exclusions check:
| Item | Common practice |
|---|---|
| GST (10% in Australia) | Most residential contracts: inclusive. Always state “incl. GST” or “ex. GST” explicitly |
| PC sums (Prime Cost items) | Allowance only; actual cost adjusts the contract sum upward or downward |
| PS items (Provisional Sums) | Same as PC; allowance only, actuals adjust |
| Builder’s margin | Inclusive in lump sum; in cost-plus typically 15-25% on top of costs |
| Site costs | Inclusive in lump sum; some contracts treat as PS |
| Connection fees (water, sewer, NBN, electricity) | Often PS; can be substantial ($5k-$50k for new sites) |
| Council fees and DA/CDC costs | Often excluded; owner pays |
| Owner-supplied items | Excluded; owner supplies and installs |
The PC and PS trap:
A contract sum of $500,000 with $80,000 of PC and PS allowances looks like a fixed price. It isn’t. At final settlement:
- Kitchen PC allowance $20,000; owner upgrades to $35,000 → contract sum increases by $15,000.
- Tiles PC allowance $10,000; owner picks high-end at $25,000 → contract sum increases by $15,000.
- Site PS allowance $20,000; actuals are $32,000 → contract sum increases by $12,000.
- Final contract sum: $542,000 (8.4% over the “fixed price” the owner thought they signed).
Always confirm: “What is fixed and what is allowance?” Get the answer in writing.
Contract sum variations during the project:
| Cause | Effect |
|---|---|
| PC/PS actuals differ from allowance | Up or down adjustment (the variation that owners don’t argue) |
| Variations (changes to scope) | Up or down depending on the change; owner signs |
| EOTs (extensions of time) | Don’t directly change the sum; may attract delay damages or prolongation costs |
| Statutory adjustments | GST rate change, council fee change, etc. |
| Builder’s voluntary discount/allowance | Down adjustment; rare but possible |
| Damages or liquidated damages for delay | Down adjustment from owner’s side |
The “fixed price” misconception:
A residential client often hears “fixed price contract” and assumes the $500,000 figure won’t change. In practice:
| What client hears | Reality |
|---|---|
| ”Fixed price $500,000” | $500,000 firm for the defined scope, before PC/PS adjustments and variations |
| ”All inclusive” | Inclusive of items in the contract; not of items not in the contract |
| ”Locked in” | Locked in for scope; not locked in for actuals on cost-driven items |
This is why “fixed price” contracts can still increase 10-20% by completion: variations, PC/PS adjustments, and unforeseen site costs add up.
Reading the contract sum: builder’s pre-signature checklist:
- Verify GST treatment: incl. or excl. → matters by 10% of every quote.
- List all PC items: how many, what allowances, what’s actually being supplied?
- List all PS items: same review.
- Check inclusions and exclusions: does the price include rubbish removal, site clearance, scaffolding, crane hire?
- Verify exemptions: connection fees, council fees, anything explicitly owner’s responsibility?
- Check variations process: how are variations agreed, priced, and added to the contract sum?
- Confirm payment schedule: how is the contract sum split across progress payments?
- Read the “fixed price” representation carefully: is the language “fixed price” or “estimated price” or “firm bid”?
Common defects:
- GST treatment ambiguous: contract says $500k without specifying. 10% argument at final account.
- PC/PS allowances unrealistic (kitchen $5,000 PC when builder knows the client wants $30,000): builder is essentially under-budgeting the contract; final sum jumps.
- Connection fees not flagged: $20-50k surprise on a new build.
- No variations process specified: changes accumulate without proper documentation; final sum disputed.
- Verbal “discount” by builder at final account that wasn’t in writing: dispute and recover the full sum.
Builder takeaway:
- The contract sum is the start of the conversation, not the end. Be explicit about what it covers.
- Use realistic PC/PS allowances; over-quoting wins you the job, then disappoints the client.
- Document every variation in writing with owner sign-off before doing the work.
- Track the running contract sum (original + signed variations + PC/PS adjustments) throughout the project.
Also known as: total contract price; total bid; quote; agreed price; final figure (loosely); builder’s offer.
Category: Contracts & commercial.
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Last updated: 2026-05-16. Verified: 2026-05-16. Quarterly review for currency.