What is a prime cost item?

A prime cost item, usually written as a PC item, is an allowance in your building contract for the supply of a product you have not yet chosen. The installation labour is already priced elsewhere. Only the product cost adjusts — up or down — once you make your selection.

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 select, the allowance is compared against the actual supply cost and the contract price moves by the difference.

If you are trying to work out how this differs from the other allowance in your contract, start with prime cost item vs provisional sum — that distinction resolves most of the confusion, and this article assumes you have it.

What is treated as a prime cost item

Products. Things you will walk into a showroom and choose:

• Tapware and sanitaryware
• Tiles and floor coverings
• Appliances — cooktop, oven, dishwasher, rangehood
• Light fittings
• Door and cabinet hardware
• Letterboxes, mirrors, shower screens

The defining feature is that the trade work to install it is already in the contract. The builder has allowed for a plumber to fit a mixer. What has not been settled is which mixer.

How the adjustment works

Say your contract carries a $600 allowance for a kitchen mixer, and 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 carries the ordering, coordination and warranty for the item, and the margin reflects that work.

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 warranty that allowances be calculated with reasonable care and the substantiation a builder must provide — is set out in the 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.

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

Read next: prime cost item vs provisional sum if you are still untangling the two, or what a provisional sum is for the other allowance in your contract. Or start at Getting Quotes & Hiring Trades for the wider picture.

A prime cost item is the one allowance in your contract you genuinely control. Every selection you make before signing is one less number that can move afterwards.