BUILDER’S MARGIN ON PRIME COST AND PROVISIONAL COST ITEMS UNDER THE HBCA LUMP SUM BUILDING CONTRACT

HIA is often asked about how to claim a builder’s margin on prime cost items and provisional

cost items. This issue can cause some confusion, so to ensure that you are not overcharging

or undercharging on your builder’s margin, HIA suggests you read the information below

before entering into your next HIA HBCA Lump Sum Building Contract.

Provisional Sums

A provisional sum item is used for work (including labour and materials) for which the builder,

after making all reasonable inquiries, cannot give a definite price at the time the contract is

signed. Common examples include landscaping, tiling and concreting.

Your margin for a Provisional Sum (as well as the costs of supervision and overheads) is the

percentage set out in Item 11 of the Schedule of Particulars to the Contract.

What if the actual cost is less than the allowance?

If the actual cost is less than the allowance then the owner is to be given a credit for the

difference. You do not apply a builder’s margin on the difference (as the allowance was

already inclusive of your margin).

Can I be paid more where the actual cost is more than the allowance?

If the actual cost exceeds the allowance then the builder is entitled to charge a margin on

the cost exceeding the allowance.

Prime Cost Items

Prime Cost Items are items that either have not been selected or whose price is not known at

the time the contract is entered into, and for which the cost of supply and delivery the

builder has made allowance for in the contract price. Examples include white-goods, tap-

ware and light fittings.

Your margin for a Prime Cost item is already included in the overall contract price, not in the

amount allowed for in Item 11 of the Schedule of Particulars. Therefore, if there is an

adjustment in the calculation of a Prime Cost item, whether it is an increase or decrease, no

margin would be applied to the difference.

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You Must Reasonably Estimate the Cost of a Provisional Sum or Prime Cost Item

The builder is required to ensure under the Home Building Contracts Act 1991 (WA) that the

allowance for each PS and PC are calculated with reasonable care and skill taking account

of all the information available to the builder at the date the contract is made including the

nature and location of the building site.

Upon completion of the work the subject of a Provisional Sum or Prime Cost item, or at the

next progress payment notice, the builder is obliged to provide the client with an itemised

statement of the price for the work or the items.

Should you require any further assistance on this or any other contractual matter please call

Michael O’Kane, HIA Workplace Advisor (Western Australia) on 9492 9200.