Provisional Sums are often misunderstood, but when used strategically, they offer real benefits for builders in managing both risk and flexibility under a contract.
A Provisional Sum is an estimated allowance for work, materials, or services that are not fully defined at the time of contract signing. Rather than committing to a fixed price for uncertain scope, the builder can insert a placeholder amount—giving breathing room to clarify scope or pricing down the track.
From the builder’s perspective, the benefits are significant:
Risk Mitigation: Instead of pricing a vague or incomplete item with a large contingency, a Provisional Sum fairly shifts the uncertainty. Builders avoid the risk of underquoting and the client retains some price flexibility.
Cash Flow Protection: The builder is typically paid the provisional amount until the actual cost is known, reducing early exposure to variations and time-consuming negotiations.
Commercial Flexibility: Provisional Sums allow builders to proceed with the rest of the work without delay. Items like landscaping, joinery, or finishes—which often involve evolving client input—can be firmed up during the build.
Transparency in Variation Claims: Once the actual cost is known, the difference between the Provisional Sum and the actual amount is adjusted through the contract mechanism—often with an agreed margin. This reduces disputes and supports clear contract administration.
Builders should ensure the Provisional Sum is clearly scoped, and the mechanism for pricing adjustments is well documented. In lump sum contracts like AS 4000 or AS 4902, Provisional Sums—when used properly—strike the right balance between pricing certainty and practical flexibility.