Every figure below comes from the standard NSW home building contract for work over $20,000, published by Building Commission NSW. It is the contract most owners will be shown or compared against, and it explains both terms in plain words. I quote it rather than paraphrase, because the exact wording is what you will be held to.
What is a provisional sum in a building contract?
A provisional sum is an estimate, included in the contract price, for work the builder cannot give a definite price for when you sign. The NSW contract gives unforeseen rock excavation as the example. The estimate is adjusted to the actual cost once the work has been done.
The contract is clear that provisional sums are a last resort. It says they "should only be used where the contractor cannot price the work before it is undertaken", and that "excessive use of provisional sums should be avoided". If there is any doubt, it tells the owner to ask the builder to explain why a fixed price cannot be given.
- Provisional sums cover work, usually below ground or hidden, where the quantity is unknown.
- Where quantity is the problem, the contract suggests a rate (for example per cubic metre of rock) multiplied by the builder's estimate of quantity.
- The builder warrants the allowance was estimated "with reasonable care and skill".
On a sloping or rocky block, this is where the money is. The contract itself suggests discussing a geotechnical survey to assess the quantity of rock more accurately, and warns that if quantities are not carefully estimated, "the contract price may vary significantly".
What is a prime cost item?
A prime cost (PC) item is an allowance for a fixture or fitting you have not chosen yet when you sign. The NSW contract gives the stove and special kitchen and bathroom products as examples. The builder allows an amount that should cover the expected cost, and the price is adjusted once you make your selection.
Unless the contract says otherwise, installing a PC item and connecting it to services is included in the contract price. Only the cost of the item itself is the allowance.
- You must make each selection in time to avoid delaying the work.
- The builder must give you adequate written notice of when each selection is needed.
- Written warranties for PC items must be handed to you on completion.
What is the difference between a PC item and a provisional sum?
A prime cost item is a product you have not selected yet. A provisional sum is work the builder cannot price yet. PC items move with your choices; provisional sums move with what is found on site.
| Prime cost item (clause 11) | Provisional sum (clause 10) | |
|---|---|---|
| Covers | Fixtures and fittings not yet selected | Work that cannot be priced before it is done |
| Contract example | Stove, special kitchen and bathroom products | Unforeseen rock excavation |
| What moves the cost | Your selection | Site conditions and actual quantities |
| How you control it | Choose before you sign, with enough detail to price | Site testing before you sign, so it can be a fixed price |
How are PC items and provisional sums adjusted?
Both are adjusted the same way. If the actual cost is higher than the allowance, the difference is added to the contract price with the builder's margin on the excess, plus GST. If it is lower, the price is reduced by the difference, with no margin.
- The work is done, or the item is bought.
- The builder compares the actual cost with the allowance in the schedule.
- An overrun is added with the margin percentage written into the contract; an underrun is deducted.
- The builder must provide the invoice, receipt or other evidence of the actual cost when payment is requested.
- The adjustment goes into the next progress payment, or as the parties agree.
For provisional sums, the builder must also offer you the chance to be on site, with adequate written notice, to verify the actual cost of the work. The builder does not have to delay the work if you cannot attend.
Read the margin box
The contract leaves the margin percentage blank for the builder to fill in, and tells owners: "You should question any margin that exceeds 20% and seek further advice if necessary."
Why do PC items and provisional sums push building budgets over?
Because the allowance is only as good as the estimate behind it. A low allowance makes a quote look cheaper at signing, and the difference comes back later with a margin on top. Owners usually meet it at the worst time: mid-build, with the money committed.
- Low allowances. An allowance that does not match the quality you want will be exceeded as soon as you choose.
- Too many provisional sums. Every item left provisional is a part of the price that is not fixed.
- The margin on the excess. An overrun costs more than the overrun itself.
- Late selections. Choosing under time pressure rarely lands under the allowance.
- Unknown ground. Rock, water or fill found during excavation is exactly what provisional sums exist for.
This is why two quotes for the same house can look far apart and end up close together, or the other way round. Compare the schedules, not only the totals.
What should you check before you sign?
Check how much of the price is allowances, whether each one is realistic, and what margin applies to overruns. Then remove as many allowances as you can before signing, by choosing fittings and testing the site.
- Add up the provisional sums and PC items as a share of the contract price.
- Ask why each provisional sum cannot be a fixed price.
- Choose fittings and appliances before you sign. NSW Government advice is to give enough detail about the products you want so prices quoted in the contract are accurate.
- On a sloping or rocky block, ask whether site testing would let the builder fix the price. The contract's own note to builders says tests should be undertaken where necessary so that area of work can be included in the fixed price.
- Read the margin percentage, and question anything above 20%.
- Remember that anything outside the schedules is a variation, and variations must be in writing and signed by both of you.
This is the part of pricing I spend the most time on at a site assessment, which I run personally on every CKS job. The ground decides most of the provisional sums, so the more that is known about it before the contract, the more of the price can be fixed.
- Choosing a builder: licence and insurance checks: the registers, the insurance certificate and the payment rules.
- Stages of a new home build, from slab to handover: when progress payments fall due.
- Custom home or project home: how each one is priced.
Sources
Checked on 29 September 2026.
- Building Commission NSW, Home building contract for work over $20,000 (July 2025): clause 10 (provisional sums), clause 11 (prime cost items), and the explanations and owner notes beside them.
- NSW Government, Contracts for residential building work: choosing fittings before you sign, and variations in writing.
General information from a builder, not legal advice. Confirm current requirements with Building Commission NSW.