Provisional Sums And Prime Cost Rate

Provisional Sums And Prime Cost Rate

A provisional sum is an allowance (lump sum) included in the contract for a work which is either:

1. Not fully designed, does not have enough information for the bidder to accurately price; or
2. Works, for which the Employer intends to, keep a discretion, for carrying out the works in full, part or not at all.

Allowance for the provisional sums is pre-determined by the owner’s cost consultant.

Type of Provisional Sums

According to RICS New Measurement Rules (NRM 2), Provisional sums can be categorized as:

• Defined provisional sum means a sum for which there is sufficient detail for the contractor to make allowance for them in program, planning, and for pricing the cost of preliminaries.
• Undefined Provisional sum means a sum provided for work that is not completely designed and for which contractor cannot make allowance in their program, planning, and for pricing of preliminaries

Separate provisions for overhead and profit shall be made in the bill of quantity for the provisional sums

From Contract Perspective:

FIDIC 1999 – Red Book:

Sub-clause 13.5 [Provisional sums] – The provisional sums can be expended in full or in part upon Engineer instruction. The instruction will form part of Variation for additional works and shall be valued in accordance with sub-clause 13.3 [Variation Procedure]; and/or Engineer can issue an instruction to the contractor to purchase the plant, material, and services from a nominated subcontractor, which shall be valued on the actual amount paid plus overhead and profit.

If required by the Engineer, the contractor shall produce the invoices, quotations in support of the amount.

Adjustment of Provisional sums

Provisional sums are valued based on the existing contract rates, or in absence of which, these are evaluated as per actual cost of the work plus overhead and profit. However, in case of omission of the defined provisional sum from the contract, preliminaries shall be adjusted as a part of the evaluation of the works, if the preliminaries are affected due to omission of works.

In case of undefined provisional sums wherein the contract cannot make allowance in their program, planning, and pricing preamble, additional preliminaries shall be assessed as part of the evaluation of the work, if the execution of work does require an additional preliminary related cost.

Prime Cost Rate

Prime cost rate refers to a provisional rate included in the contract for the purpose of supply of specific materials (supply only rates) for which the quality of materials is not determined at the time of tender. The purpose of the PC rate is to ensure that the employer is in control of the finished product.  A typical example could be paving tiles, wall & floor tiles, specific cladding. A PC rate excludes all costs associated with installation, all associated items required for installation of material, contractor/ subcontractors’ preliminaries, which the contractor is required to price in other relevant BOQ items.

Adjustment of Prime Cost Rate

The price difference between an allocated budget for prime cost and the final cost will be charged as an adjustment to the prime cost in a progress claim, rather than a variation. The contract sum will be increased if the actual cost is higher than the bill of quantities allowance and if the cost, then the contract sum will be reduced accordingly.

Consider the below example for the adjustment of PC rate:

Supply and Install surface mounted florescent wardrobe light      5No.      AED550/no.        AED2,750.00

(PC rate AED 250/no.)

In case, the cost (supply) of wardrobe light increases to AED325/no, then the contractor can claim extra amount arising due to such increase (i.e., From AED 250 to AED 325) and OH & P associated with the increased rate. A deduction shall be treated in the same way. The overall purpose is that the other elements, which are known and agreed remains fixed and is not amended.