Provisional sums are a common element found in many construction contracts, but what exactly is a provisional sum? Why are provisional sums used? And what are the implications of a provisional sum? This article will look at provisional sums in more depth to help you to understand them better, and so that you are better prepared the next time you encounter them.
The term ‘provisional sum’ is defined in the RICS New Rules of Measurement (NRM) as:
a sum of money set aside to carry out work that cannot be described and given in quantified items in accordance with the tabulated rules of measurement. A provisional sum will be identified as either ‘defined’ or ‘undefined’
In general, this means that it is an allowance in the contract for works that are not sufficiently defined at tender stage to be priced accurately. However, it also presents two additional elements to provisional sums, so what is the difference between ‘defined’ and ‘undefined’ provisional sums? Let’s start with the NRM definitions again:
Defined
A sum provided for work which is not completely designed but for which the following information shall be provided:
- the nature and construction of the work;
- a statement of how and where the work is fixed to the building and what other work is to be fixed thereto;
- a quantity or quantities that indicate the scope and extent of the work; and
- any specific limitations and the like identified.
Undefined
A sum provided for work that is not completely designed, but for which the information required for a defined provisional sum cannot be provided.
A defined provisional sum should therefore have the necessary information for the Contractor to be able to include sufficient programme and prelim allowances within their tender submission. The risk for this will then lie with the Contractor. By extension, this means that a Contractor cannot be expected to include programme and prelim allowances for undefined provisional sums so the risk will remain with the Employer.
This is something to be very aware of when looking at a project with provisional sums because of the additional risk involved with a defined provisional sum. If a provisional sum is listed as defined, make sure there is sufficient information as detailed above. Otherwise, make sure it is qualified in your tender. It is also important to include dates in the Information Request Schedule for when the information is needed to be able to carry out the provisional sum works in accordance with the contract programme.
Provisional sums are dealt with slightly differently depending on the form of contract. Under the JCT forms of contract, an instruction needs to be issued to carry out works defined in the provisional sum schedule. The price included for provisional sums is only an allowance so it needs to be adjusted once the works are fully detailed. More importantly, any provisional sums included in the contract form part of the scope of works, therefore if any provisional sum works are omitted then the Contractor may be able to make a claim for loss of profit.
Under the NEC forms of contract, there is no facility for the use of provisional sums. This is due to the uncertainty and risks associated with provisional sums. The NEC once stated on their website that “if you cannot precisely define aspects of the works, you should not be including them as a provisional sum”. However, that is not the end of it. It is still possible to make use of provisional sums through the early warning system and early warning register. The works can then be valued as a compensation event as and when they are defined and required.
Provisional sums definitely have a place in construction contracts. There are frequently elements of work that cannot easily be defined when entering into a contract, so including a provisional sum allows the Employer to have a better idea of what the potential final cost of the works might be. However, it is important for the Contractor to understand the risks involved and try to mitigate them as much as possible:
- make sure that defined provisional sums are properly defined so that adequate allowances can be made.
- make sure it is clear that no programme or prelims allowances have been included for undefined provisional sums.
- make sure you have included dates in the information request schedule for when provisional sum details are required to allow the works to progress on programme.
VOLOCO can assist you with reviewing provisional sum requirements to help you make the correct allowances or clarifications if required.
