A provisional sum is an allowance written into a building contract for work that cannot be priced exactly when the contract is signed, because its full extent isn't yet known. It covers both the labour and the materials for that work. When the work is done, the allowance is adjusted to the actual cost, and the contract price moves up or down accordingly.
Excavation is the classic example. Until someone digs, nobody knows whether they'll hit clay, sand or rock. Rather than guess high and inflate the contract, or guess low and create a dispute, the builder includes a reasonable allowance and adjusts it once the ground is open.
Used properly, provisional sums are a sensible mechanism. Understanding how they work before you sign is what keeps them that way.
Provisional sum vs prime cost item
These two terms sit side by side in most Australian contracts and are frequently confused. The distinction is straightforward once you see it.
A prime cost (PC) item is an allowance for the supply of a product you haven't chosen yet — tapware, tiles, a cooktop, door hardware. The work of installing it is already priced elsewhere in the contract. Only the product cost adjusts.
A provisional sum (PS) covers both supply and labour for work of uncertain extent. Excavation, rock removal, underpinning, landscaping, driveway works, service connections and asbestos removal are typical.
Put simply: a prime cost item is a thing you'll pick later. A provisional sum is work nobody can measure yet.
How the adjustment actually works
Provisional sums are reconciled as the work is completed, usually at the progress claim covering that stage. The builder substantiates the real cost, and the difference is applied to the contract price.
Say your contract carries a $12,000 provisional sum for site works, and your contract states a builder's margin of 20% on adjustments.
- If the work comes in at $18,000 — the shortfall is $6,000. The margin applies to that difference, adding $1,200. Your contract price rises by $7,200, plus GST as applicable.
- If the work comes in at $9,000 — you're credited the $3,000 difference. Note that many standard contracts do not apply the margin to credits, so check how your contract words this.
The margin rate varies between contracts and is commonly up to around 20%. It is applied before GST. What matters is that the rate is written into your contract and that you know it before signing, not after the first adjustment lands.
What your contract is required to contain
Provisional sums are regulated in Australian residential building contracts, and the protections are meaningful.
In Victoria, the Domestic Building Contracts Act 1995 requires a separate schedule for each prime cost item and provisional sum, setting out a detailed description of the work, the amount allowed, and any margin together with how it is calculated. The builder also warrants that each provisional sum was calculated with reasonable care and skill using the information reasonably available when the contract was made — which expressly includes the nature and location of your site. The Act further provides that a builder must not include a provisional sum lower than the reasonable cost of carrying out the work.
In Queensland, the QBCC Act applies an equivalent warranty to regulated domestic building contracts, and requires the builder to substantiate the cost — with invoices or a labour breakdown — at the progress claim in which the item appears.
In New South Wales, the Home Building Act 1989 sets the disclosure obligations. Industry guidance is clear that the allowance shown in the schedule excludes the builder's margin, and that the margin applying to adjustments must be accounted for in the contract price.
The practical takeaway is the same everywhere: a provisional sum that is vaguely described, unsubstantiated or missing its margin is not compliant. You are entitled to a clear schedule and to evidence of cost.
The Victorian detail worth knowing
Victorian owners have a right to end a major domestic building contract if the contract price rises beyond a set threshold — currently more than 15%. It's an important protection, with one nuance that catches people out: valid prime cost and provisional sum adjustments are not counted toward that threshold.
In other words, a contract carrying substantial provisional sums can move a long way in price without triggering that right. This is not a loophole so much as a reason to count your allowances carefully before you sign.
How to reduce provisional sums before signing
Almost every provisional sum exists because a decision hasn't been made or an investigation hasn't been done. Most can be converted into fixed figures with a modest amount of work up front.
- Commission your own soil test and contour survey. This single step converts the largest and most common provisional sum — site costs — into a priced item. Do it before signing, not after.
- Locate the services. Knowing where water, sewer, power and gas actually run removes the guesswork from connection allowances.
- Make your selections early. Choosing tiles, tapware and appliances before signing turns prime cost allowances into real numbers.
- Ask for a quote against the allowance. Where a builder has allowed for landscaping or a driveway, ask whether a subcontractor has actually priced it. Often one has.
- Total them. Add every provisional sum and prime cost item together and express it as a percentage of the contract price. That figure tells you how fixed your fixed price really is.
Questions to ask before you sign
- How many provisional sums are in this contract, and what is their combined value?
- What is each allowance based on — a quote, a measurement, or an estimate?
- What margin applies to adjustments, and does it apply to credits as well as increases?
- What evidence will be provided to substantiate the actual cost?
- Which of these could be converted to a fixed price before signing?
- Is each item set out in its own schedule with a detailed description?
A builder who answers these readily is giving you a good sign about how the rest of the job will run.
Common questions
Are provisional sums legal in Australia?
Yes. They are a standard and legitimate feature of Australian residential building contracts, provided they are disclosed and documented as the relevant state legislation requires.
Can a provisional sum go down?
Yes. If the actual cost is below the allowance, the difference is credited to you. Check whether your contract applies the builder's margin to credits.
Does the builder's margin apply to provisional sums?
Usually, on the difference between the allowance and the actual cost. The rate must be set out in the contract. It is applied before GST.
How many provisional sums is too many?
There's no legal limit, so judge it by value rather than count. Once allowances represent a large share of the contract price, you're signing an estimate rather than a fixed price — and it's worth converting some of them before you commit.
What if the builder's allowance was unreasonably low?
Both the Victorian and Queensland regimes require provisional sums to be calculated with reasonable care and skill using the information available at the time, and Victoria expressly prohibits allowances set below the reasonable cost of the work. If an allowance appears to have disregarded known site conditions, seek advice from your state building authority or a solicitor.
Where to go next
Provisional sums are one of four mechanisms that move the price of a supposedly fixed contract. The others are variations, prime cost adjustments and price rise clauses. Understanding all four before you sign is the single highest-value hour you'll spend on the commercial side of your build.
Read next: how progress payments work, so you're never paying ahead of completed work. Or start at Getting Quotes & Hiring Trades for the full picture on comparing builders and reading a contract properly.
Home Collab publishes the working detail behind building and renovating in Australia — written from job experience, updated as costs and regulations move, and free to read.
August 14, 2026