Prime cost items and provisional sums,
the unfixed parts of a fixed price.

A fixed-price residential building contract promises a single number for the whole job, but two categories of cost genuinely cannot be fixed on the day of signing. The client has not yet chosen every tap, tile and appliance, and parts of the work (what sits under the topsoil, what a demolition uncovers) cannot be measured until the job is under way. Prime cost items and provisional sums are the contract's honest answer to those two problems, allowances carried inside the fixed price for the pieces that cannot yet be priced.

Defined precisely, a prime cost (PC) item is an allowance for the supply of a material or fitting that has not yet been selected. The item is known (there will be an oven, a bath, floor tiles); the specific choice is not. Installation is conventionally priced elsewhere in the contract, which is exactly why the written description matters. A provisional sum (PS) is an allowance for a whole parcel of work whose extent cannot be defined when the contract is signed, covering labour and materials together, rock excavation and unexposed structural work being the recurring examples.

Why they matter

Both allowances are born in the estimate, and the wider discipline they belong to is covered in the estimating reference. They matter because they are the only parts of a fixed price that are designed to move, so they are where a client's trust in the number is either earned or spent. They are also where the estimate stops being internal. An estimate can be revised quietly, but an allowance written into a contract is a promise with a prescribed adjustment mechanism attached, a distinction the tender, estimate and quote article treats in full.

An allowance lives longer than almost any other number on the job. It is set at estimate time, disclosed in the contract, tested during client selections and on site, and reconciled through progress claims to the final account. The contract mechanics belong to the wider residential building contracts reference; this article follows the allowance itself. Two moments decide whether it behaves. The first is when the allowance is set, because a number chosen to win the tender rather than to predict the cost has already decided how the job ends. The second is when the actual lands, because an adjustment surfaced and documented immediately is a routine conversation, while the same adjustment discovered at the final claim is a dispute.

The operator's rule is blunt. Every under-set allowance is a variation you have pre-booked with your own client. The money does not disappear because the allowance was low; it arrives later, with paperwork, at a moment the client believed the price was settled. Builders who have run enough jobs stop treating the allowance as a tendering lever and start treating it as the first test of whether the client relationship will survive the build.

The honest move is a selections conversation before contract. Walk the client through what they actually intend for the kitchen, the bathrooms and the finishes, set each allowance against that intent, and write a note of exactly what the allowance covers. Supply only versus supply and install is the classic gap; the client hears taps on the wall, the estimate priced taps in a box, and the difference surfaces as an argument eight months later. A sentence in the allowance schedule closes that gap for free.

Experienced builders also keep the allowance distinct from contingency. An allowance is client-facing and adjusts the contract price when the actual lands; contingency is the builder's own priced risk and does not appear in the client's schedule at all. Blending them produces a number that does neither job, and it usually means the risk was never actually identified.

When actuals land over the allowance, the decision is the accept, re-quote or value-engineer call covered in the quotes over allowance guide, and it is only as good as the visibility behind it. Where a client's choice goes beyond what the allowance ever covered, it becomes a variation, and the discipline of pricing and documenting it before the work proceeds is covered in managing variations. Late in pre-construction, when a client is handed the accumulated adjustments and asks what the total is, the speed and clarity of that answer is where trust is won or lost.

Where software fits the workflow

Traditionally, allowances are set in the estimate, re-typed into the contract, and reconciled from invoices months later. In VIABUILD the allowance stays connected to what happens against it; client selections are tracked against their allowances, so a choice above the PC figure surfaces at the point of choice and the adjustment is documented while it is still a conversation. The builder still makes the call; the difference is making it early, with the numbers in front of everyone.

Allowances are one of the most regulated corners of residential building in Australia. The points below are labelled by evidence class. Requirements differ by state and territory and change over time, so confirm the current source before relying on any of them.

• Legislation. Each state and territory's domestic building contract legislation regulates how prime cost items and provisional sums must be disclosed and adjusted in residential contracts. The common mechanisms are that allowances are itemised in the contract, that several jurisdictions expect an allowance to be a realistic estimate of the likely cost, and that the adjustment method is prescribed rather than left to the builder. The details, warning wordings and any caps or margin rules differ by jurisdiction, so confirm the current requirements with your regulator before contracting.
• Legislation. The contract the allowances live in is itself regulated. A residential building contract is conventionally written, dated and signed, describes the work with plans and specifications, and states the price or the method of calculating it, which is precisely the door an allowance schedule walks through. Jurisdictions differ on when a written contract is mandatory at all; see the written building contract guide.
• Common practice. Most residential contracts require variations to be in writing and signed by both parties. Applying the same discipline to allowance adjustments, priced and signed as each actual lands, prevents most allowance disputes before they form.
• Industry best practice. Standard-form residential contracts published by HIA and Master Builders are maintained against each jurisdiction's legislation. Using a current edition is the simplest way to inherit compliant allowance schedules and adjustment clauses rather than drafting them from an old template.
• Government guidance. State and territory fair trading bodies and building regulators publish plain-language guidance on residential building contracts, including how allowances should be presented. Clients increasingly read it before signing, so assume yours has.

The mechanism is national in shape and local in detail. Every jurisdiction regulates allowance disclosure and adjustment through its own domestic building contract legislation, and no two do it identically. What varies includes the threshold at which a written contract is required at all, the prescribed warnings, how realistic an allowance must be, and how margin is treated on adjustment. The notes below are deliberately general; confirm the current position with the local regulator before contracting.

• New South Wales. Regulates residential building contracts, including allowance disclosure and adjustment, under its home building legislation.
• Victoria. Regulates domestic building contracts under dedicated domestic building legislation, with its own contract and adjustment requirements.
• Queensland. Regulates domestic building contracts under its building industry legislation, with requirements that differ from the southern states.
• Western Australia. Regulates home building contracts under its own legislation, with thresholds and requirements specific to WA.
• South Australia. Regulates domestic building work contracts under state legislation with its own disclosure requirements.
• Tasmania. Mandates a written contract for residential building work above a dollar threshold and caps deposits by statute, so allowance disclosure sits inside a mandatory written contract.
• Australian Capital Territory. Does not mandate a written contract for residential building work but strongly recommends one, and a written allowance schedule is the practical form of that recommendation.
• Northern Territory. Regulates residential building contracts under territory legislation, with requirements that differ from the states.

Illustrative only, not a benchmark. A knockdown rebuild carries two allowances. A provisional sum of $10,000 for excavation and site works, because nobody has seen under the old slab, and a prime cost allowance of $12,000 for the appliance package, marked supply only, because the client has not chosen. Excavation hits rock and the measured actual is $16,500; the client selects appliances totalling $14,800. Under the contract's adjustment mechanism the price moves by the two differences ($6,500 and $2,800 in this illustration), each documented and signed as it landed rather than bundled at handover. Whether margin applied to either difference depended on the contract wording and the state's legislation, which this builder confirmed before signing, not after the rock.

The same job tendered with a $6,000 site works allowance and an $8,000 appliance allowance would have looked $8,000 cheaper on signing day and delivered the same house at the same final cost. The difference is that the cost would have arrived as unwelcome adjustments against numbers the client believed, which is the optimistic allowance working exactly as designed.

Prime cost item (an allowance for the supply of an unselected material or fitting), provisional sum (an allowance for work whose extent is undefined), allowance schedule (the contract's list of both), adjustment (the price movement when the actual cost replaces the allowance), supply only versus supply and install (what the allowance does and does not cover), variation (a change to the contracted scope, distinct from an allowance adjustment). Definitions for the wider vocabulary live in the construction glossary.

From the unfixed parts of the price, the natural next step is the cost of simply running the job; that is preliminaries.

• Your state or territory's building regulator and fair trading body, for the current rules on how prime cost items and provisional sums must be disclosed and adjusted in your jurisdiction.
• Housing Industry Association , publisher of standard-form residential building contracts maintained against each jurisdiction's legislation.
• Master Builders Australia , publisher (through its state and territory associations) of standard-form residential building contracts.