How to avoid prime cost and provisional sum traps

What to look out for in your home building contract

When you set out to build a new home, or renovate your existing house, you’ll no doubt be motivated to keep to the budget you’ve set. 

Yet there are a few different things that can cause you to go over budget on your home building project. Two of the most common reasons for this are the prime cost and provisional sum items listed in your contract. 

Prime costs are items on a building contract for which a budget is set, but the exact price isn’t yet known. For example, if you haven’t yet chosen the exact taps you’d like in the bathroom, these will have to be listed as a prime cost. 

A provisional sum is an estimate of a cost for which an exact figure cannot be given. For example, excavation is a common provisional sum item, because the extent of the excavation required may be unknown until work has begun.

If provisional or prime cost items are included in your contract, it’s important to remember that these cost items are not fixed. They can potentially increase significantly. 

Is your building contract up to scratch?

Fortunately, there are a couple of things you can do to make sure you’re aware of all the uncertain costs, and budget for them accordingly. Here’s what to remember when you’re looking at a domestic building contract. 

When can provisional sums be used in a home building contract?

For domestic building contracts, there is protection provided to you under the Queensland Building and Construction Commission Act 1991 (‘the Act’). Under the Act the builder must first make all reasonable enquiries to ensure that they can’t include a definitive amount in the contract. Only then can the item be a provisional sum in the contract. 

If you want to avoid uncertain costs, the best option is to ensure you have a fixed price for as many items as possible in your contract. To do this, you will need to select all of the items to be used in your contract (or at least as many as possible) prior to signing your contract.

For some items there simply may not be a choice. A provisional sum may be the only logical way to move forward.

How to deal with uncertain costs in your home building contract

If you see ‘prime cost’ or ‘provisional cost’ items proposed on your building contract, remember to:

1) Take the time with your builder to select as many items as possible. This helps fix a price for these individual items, and removes them from being a provisional sum or prime cost item. 

2) For items that must be a provisional sum or prime cost item, make sure you completely understand that the figure provided is an estimate only. Make room in your budget for a contingency on these items.

Contact McCarthy Durie Lawyers for advice on domestic building contracts

If you are about to enter into a domestic building contract and you’re unsure about any aspect, McCarthy Durie Lawyers can help. Contact our experienced Building and Construction Law team on 3370 5100 or fill out the contact form here.

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