What is a prime cost item, and how does it differ from a provisional sum?

They appear on adjacent lines of the same schedule, they are both described as allowances, they both come with an acronym, and at the meeting where they were explained you almost certainly nodded. Everyone does. The builder said something about tapware and something about excavation, the conversation moved on, and you were left holding two terms that sound like the same idea expressed twice. It is not a failure of attention. Prime cost items and provisional sums are genuinely similar in appearance and entirely different in function, and almost nobody explains the difference in a way that survives the drive home.

Here is why it matters more than the paperwork suggests. These two mechanisms are the reason a fixed-price contract is not a fixed price. Every one of them is a number that will change after you have signed, and they change in only one direction more often than not — quietly, one selection at a time, in amounts too small to argue about individually. Most owners discover the distinction at the first adjustment, which is precisely too late to do anything about it. The good news is that the difference is genuinely simple, and once you can see it you can read your own contract and know exactly where it is exposed. A prime cost item is a thing you have not chosen yet. A provisional sum is work nobody can measure yet. That single sentence resolves most of the confusion, and everything below follows from it.

What a prime cost item actually is

A prime cost item, usually written as a PC item, is an allowance for the supply of a product you have not yet selected.

The builder needs a number in the contract, but you have not chosen the tapware. So they insert a reasonable allowance for what tapware typically costs, and the contract proceeds. When you make your selection, the allowance is compared against the actual supply cost and the contract price adjusts.

The critical feature is that the installation labour is already priced elsewhere in the contract. The builder has allowed for a plumber to install a mixer. What has not been settled is which mixer.

Typical prime cost items include tapware and sanitaryware, tiles, floor coverings, appliances, light fittings, door and cabinet hardware, and letterboxes. All products. All things you will walk into a showroom and choose.

How it differs from a provisional sum

A provisional sum covers both the supply and the labour for work whose extent is genuinely unknown. Excavation, rock removal, underpinning, service connections, asbestos removal, landscaping. Nobody knows how much is required until the work begins.

That last row is the one worth holding onto. A provisional sum is largely out of your hands. A prime cost item is almost entirely within them.

How a prime cost adjustment works

You make your selection. The actual supply cost is compared against the allowance in the contract, and the difference flows through to the contract price.

Say your contract carries a $600 allowance for a kitchen mixer, and your contract sets a builder's margin of 20% on adjustments.

• You choose a $1,100 mixer. The difference is $500. The margin applies to that difference, adding $100. Your contract price rises by $600, plus GST as applicable.
• You choose a $400 mixer. You are credited $200 — though many contracts do not apply the margin to credits, so check how yours is worded.

Nothing about that is unreasonable. The builder is carrying the ordering, coordination and warranty for the item, and the margin reflects that.

Where prime cost items actually catch people out

Not individually. That is the whole point.

They accumulate. A contract may carry thirty or forty PC items. Exceeding each by a modest amount feels like nothing at the selection appointment — and no single decision is worth arguing about. Totalled across the schedule, with margin applied to every one, it is a different number entirely. This is the mechanism, and it is invisible unless you are tracking it.

The allowance may not buy what you are imagining. Allowances are frequently set at builder's trade pricing for entry-level product. The retail showroom experience is a different world. Ask to see an example of what the allowance actually purchases before you assume it is adequate.

The allowance covers supply, not consequences. Choose a heavier stone benchtop, a larger format tile or a bath with a different footprint, and the installation requirements can change. That is a variation on top of the PC adjustment, and it is a separate line.

Quantity is not always included. Tile allowances are often expressed per square metre. Choosing a tile at the allowance rate does not protect you if the area has been under-measured.

Selections happen under time pressure. The selection appointment is frequently scheduled once the build has started, when delaying costs money. That is not the ideal condition for disciplined decisions.

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What your contract should contain

Australian residential building contracts regulate these allowances, and the requirements are meaningful. In broad terms, each prime cost item should appear in its own schedule with a detailed description of the item, the amount allowed, and the margin applying to adjustments together with how it is calculated.

The state-by-state detail — including the warranties that allowances be calculated with reasonable care, and the substantiation a builder must provide — is set out in the companion article on provisional sums, and applies to prime cost items in the same way.

A PC item described only as "tapware allowance" with a figure beside it is not a compliant schedule. You are entitled to a description specific enough to know what you are being allowed for.

How to take control before you sign

1. Make your selections before signing. Every selection you finalise converts an allowance into a fixed figure. This is the single most effective action available and it costs only time.
2. Total them. Add every prime cost item and provisional sum together and express the result as a percentage of the contract price. That number tells you how fixed your fixed price actually is.
3. Ask what each allowance buys. Not a category — a specific example product at that price. Then decide whether it is what you had in mind.
4. Ask whether your selection affects installation. Before choosing anything heavier, larger or differently configured than the allowance assumed.
5. Get the margin rate in writing, and confirm whether it applies to credits as well as increases.
6. Keep a running tally during selections. A simple list of allowance versus actual, updated at each appointment, means you always know where you stand rather than finding out at the next progress claim.

Common questions

Can I supply my own fixtures instead?

Sometimes, and it is worth thinking through. Removing an item from the contract removes the builder's margin, but it also transfers responsibility for ordering, delivery, compatibility and warranty to you. Where an owner-supplied item is wrong, damaged or late, the consequences are yours.

Are prime cost allowances deliberately set low?

They are generally set at a realistic figure for standard product, which is a different thing from the product you may want. The useful question is not whether the allowance is fair, but whether it matches your expectations — and that is answered by looking at what it buys.

Do prime cost adjustments count toward contract price escalation limits?

In some jurisdictions, valid prime cost and provisional sum adjustments are excluded from the thresholds that give owners a right to end a contract. This is covered in the provisional sums article, and it is a reason to count your allowances carefully before signing.

What if the item I selected is discontinued?

The allowance still applies and a replacement selection is made against it. Selecting early reduces this risk considerably, particularly on items with long lead times.

Can a prime cost item become a variation?

The adjustment itself is not a variation. But if your selection changes the work required to install it, that change is usually handled as a variation, and it will be priced separately.

How many prime cost items is too many?

Judge it by value rather than count. Once allowances represent a significant share of the contract price, you are signing an estimate with a fixed-price heading, and the remedy is to convert some of them before you commit.

Where to go next

Prime cost items and provisional sums are two of the four mechanisms that move the price of a fixed-price contract. The others are variations and price rise clauses.

Read next: what a provisional sum is for the other half of this pair, or how progress payments work so you are never paying ahead of completed work. Or start at Getting Quotes & Hiring Trades for the wider picture.

One is a thing you will choose. The other is work nobody can measure yet. Knowing which is which turns a schedule you nodded at into a document you can actually read.