Prime Cost and Provisional Sum Items in ACT Building Contracts

What it is

A prime cost item is an allowance the builder writes into the contract price for goods the owner has not chosen yet. Supply only: the stove, the tapware, the tiles. A provisional sum is an allowance for work whose extent cannot be pinned down at signing, labour and materials together, and site works are the classic case. Both are estimates sitting inside a price that reads as fixed, and both get trued up against the real cost later.

The ACT recognises both. It regulates neither. That gap is the entry.

The Building Act 2004 does not define them

Part 6 of the Building Act 2004 (ACT) is the residential contract part. It carries the statutory warranties, the standard conditions machinery, the defective work provisions and the residential building insurance rules. It contains no definition of a prime cost item, no definition of a provisional sum, no estimation duty, no cap on the builder's margin and no adjustment formula. The Building (General) Regulation 2008 (ACT) supplies none of those either. Part 6 does not apply at all where the cost of the residential building work is under $12,000 (reg 37).

That is a genuine difference between jurisdictions, not an accident. Victoria legislates the topic across several sections. South Australia caps the margin by regulation. New South Wales forces a warning onto page one whenever the price can move. The ACT does none of it.

The power exists and has never been used

Section 89C of the Building Act says a regulation may prescribe a standard condition for a residential building work contract, and may prescribe the meaning of a term used in one. Entering a contract that omits a prescribed standard condition, or the meaning of a prescribed term, is a strict liability offence carrying 10 penalty units.

No regulation has prescribed a standard condition. Part 4 of the Building (General) Regulation 2008 uses the neighbouring powers only. Reg 38A prescribes required documents under s 89D, and reg 38B prescribes one prohibited condition under s 89E. The machinery the Territory built for itself sits idle. Until a regulation fills s 89C, the offence has nothing to bite on.

What the guidance says and what it is worth

ACT Government guidance describes both concepts and sets an estimation standard. A prime cost allowance should be a reasonable estimate for a standard or average item, and the owner pays the difference if a dearer item is chosen. A provisional sum covers work or materials whose extent cannot be precisely detailed when the contract is entered into. The same guidance names these fluctuations as the reason a fixed price contract sum moves.

Read that for what it is. It is advice. Breaching it is not an offence and does not make the contract unenforceable. A builder who writes a knowingly thin allowance breaks no ACT building statute.

Where the money actually moves

Because nothing is prescribed, the contract carries the whole mechanism and must do all of this itself:

• define prime cost item and provisional sum, then use the defined terms consistently
• state the allowance against every item, and say whether it includes the builder's margin
• handle the under-run as well as the over-run, so a cheap selection credits the owner
• state the margin percentage and the base it applies to, being the excess or the whole actual cost
• require evidence of the actual cost before any adjustment is claimed

Leave one of those out and the gap gets filled by ordinary contract construction, which is a poor substitute for a drafted clause.

The dispute risk from a thin allowance

An allowance pitched below any realistic cost is the standard ACT complaint, and the exposure does not sit in the Building Act. It sits in three other places. The s 88 statutory warranties still require proper and skilful work, good and proper materials and fitness for a purpose the owner made known, whatever the allowance said. The unfair contract terms regime in the Australian Consumer Law still applies to the adjustment clause. And ACAT is the forum, with a civil limit of $25,000 unless the other party agrees in writing or the applicant abandons the excess, which pushes a serious allowance fight into the Magistrates Court.

What a builder should do

Keep the number of prime cost items small, which is what the Territory's own guidance advises. Price what can be priced. Where an allowance is unavoidable, evidence it at signing with a quote and draft the adjustment clause to run both ways. The ACT will not do that work for you.