Prime Cost Items and Provisional Sums in SA

What it is

A prime cost item is an allowance for goods the owner has not chosen yet, such as tapware or a cooktop. A provisional sum is an allowance for work that cannot be priced when the contract is signed, such as footings before the soil report lands.

Both are common in South Australian contracts. Neither is defined in South Australian legislation.

The Building Work Contractors Act 1995 (SA) never uses the words. Nor do the Building Work Contractors Regulations 2011, apart from Form 1 in Schedule 3, which explains both terms to owners. So the SA regime is not a prime cost and provisional sums regime at all. It is a general price-change regime under s29 that these two devices have to fit inside.

The machinery that actually applies

Section 29(1) starts from a hard default: the contract must stipulate a specific price for the work, being a price that is fixed and not subject to change, together with the terms of payment. Everything else is an exception.

Section 29(5) is the exception PC items and provisional sums live in. It makes it lawful to include a provision entitling the contractor to recover the actual cost to be incurred in acquiring materials specified in the contract or performing work specified in the contract, together with an additional amount not exceeding 10 per cent "or such other percentage as may be prescribed".

Do not stop at the 10. Regulation 16(1) prescribes 15 per cent for the purposes of s29(5)(a). The operative cap is 15 per cent, and the figure in the Act is superseded by the Regulations.

Regulation 16(2) adds the labour side: where the contract specifies an hourly rate of charge, the contractor may recover the amount produced by applying that rate to the work actually performed.

The margin

Fifteen per cent is a ceiling, not an entitlement. It is the maximum additional amount on top of actual cost, and it is the same cap that governs a cost plus contract in SA.

Form 1 tells owners the same figure from the other direction: if the standard of goods you select is higher than the builder allowed for, you may pay the additional cost plus a surcharge, which may be up to 15 per cent of the cost of the item.

Disclosure, labelling and the estimate duty

This is where SA has real teeth, and they are not where builders expect.

Section 29(6) requires the statement "This Price May Change" or "Estimate Only" set out immediately alongside or below any price that may change or is an estimate only. A PC or PS allowance is exactly that. Section 29(7) requires multiple such prices to be set out in a single list in the contract.

Section 29(8) is the sharp one: a price specified in the contract that is an estimate only must be a fair and reasonable estimate. Form 1 repeats it for provisional sums in the same words.

Section 29(9) makes non-compliance with any requirement of the section an offence. Maximum $50,000 for a natural person, $250,000 for a body corporate, with a $5,000 expiation fee.

Read that together. A deliberately low allowance used to win the job is not just a commercial risk in SA. It is a breach of s29(8), which is an offence under s29(9).

Over-runs and under-runs

There is no statutory adjustment mechanism. SA does not legislate how a PC item or provisional sum is reconciled at the end.

An over-run is recovered through the s29(5) clause you wrote: actual cost, plus up to 15 per cent. If you did not include a clause of that kind, s29(1) leaves you with the fixed price you stipulated.

An under-run is purely contractual. Nothing in the Act requires the saving to pass to the owner, so if your contract is silent, the position is whatever ordinary construction of the contract produces. Draft it deliberately.

The dispute risk

An unrealistic allowance in SA exposes you on four fronts at once, which is unusual.

CBS conciliates the complaint, then s37 sends the dispute to the Magistrates Court and s40 refers claims over $100,000 to the District Court. Section 38 lets the Court avoid or modify a harsh or unconscionable term and order repayment. Section 29(9) is the offence. And because s29 sits in Part 5 Division 1, a labelling failure triggers s36(5)(b), which keeps the owner's right to terminate open until completion.

Price the allowance as if you will have to defend it, label every movable number and set the reconciliation mechanism out in full.