Prime Cost Items and Provisional Sums in the Northern Territory

What it is

A prime cost item is an allowance for a product the owner has not chosen yet, carried in the contract as a supply figure. A provisional sum is an allowance for work that cannot be priced properly when the contract is signed, covering supply and labour together. Both are estimates sitting inside a fixed price, and both are adjusted once the real cost lands.

Several Australian jurisdictions define the two terms in statute and attach rules to them, covering how the estimate must be made and what the builder may add as a margin. The Northern Territory does not.

The NT does not legislate prime cost or provisional sums

Neither the Building Act 1993 (NT) nor the Building Regulations 1993 (NT) uses the phrase "prime cost" or "provisional sum" anywhere. There is no statutory definition, no duty to calculate the allowance on reasonable grounds, no disclosure statement and no ceiling on the margin. Nothing in the legislation tells you who wears an over-run.

That silence is the point. In the NT these allowances are creatures of the contract. What your contract says about them is very nearly the whole of the law that governs them, subject only to the Australian Consumer Law and the consumer guarantees in section 54B of the Building Act.

The one hard rule is a total contracted price

Section 48B(2) of the Building Act 1993 (NT) requires a residential building contract to include the matters set out in the Regulations. Regulation 41H(d) of the Building Regulations 1993 (NT) then requires the contract to specify the extent of the work and the total contracted price for the work. That written contract is compulsory once the building work is worth $25,000 or more, the prescribed amount set by regulation 41J.

So an NT allowance has to sit inside a stated total. You cannot leave the price open and call the gap a provisional sum. Regulation 41HD makes it a regulatory offence to enter a residential building contract that does not comply with regulation 41H, carrying a maximum penalty of 100 penalty units and a defence of reasonable excuse.

Margin, over-runs and under-runs

Because the NT legislates none of this, the builder's margin on a prime cost item is whatever the contract says it is. There is no percentage ceiling to measure it against. Adjustment works the same way. If the contract does not spell out that an under-run is credited to the owner and an over-run is charged to them, you are arguing about an implied term months later.

Contrast the position across the border. In NSW, section 7(5) of the Home Building Act 1989 forces a contract whose price may vary to carry a warning to that effect plus an explanation of the provision allowing the variation, placed next to the price. The NT imposes no equivalent duty. An NT owner can sign a contract full of soft allowances without a single statutory warning on the page.

The 5 per cent trigger nobody expects

One number in NT law does bite on allowances, and it is not in the Building Regulations. Regulation 48(b) of the Building (RBI and Fidelity Fund Schemes) Regulations 2012 requires the scheme trust deed to provide that if the total contracted price for the guaranteed work is varied by an increase or decrease of more than 5 per cent, the builder must apply to the trustees for a reassessment of the amount of cover.

Prime cost and provisional sum adjustments move the total contracted price. Move it more than 5 per cent in either direction and that reassessment obligation is live. A builder who runs a job on generous allowances and settles well above the signed figure has a fidelity fund step to take, not just an invoice to issue.

Where an unrealistic allowance ends up

An allowance pitched low to win the job is a commercial problem first, but it lands somewhere. A current owner may apply to the Commissioner of Residential Building Disputes about a contravention of the consumer guarantees. Under regulations 33 and 34 of the Building (Resolution of Residential Building Work Disputes) Regulations 2012 the Commissioner may order the builder to complete or rectify the work, or to pay compensation of no more than $100,000. Where the assessed compensation exceeds that figure, the decision must go to NTCAT, which is not held to the cap.

A pricing argument as such is not a consumer guarantee dispute. It goes to a court or tribunal under the contract instead. That is exactly why the contract wording on allowances carries the whole load in the Northern Territory.