Prime Cost Items and Provisional Sums in Tasmanian Building Contracts

What it is

A prime cost item is an allowance for something the owner has not chosen yet. A provisional sum is an allowance for work whose cost the builder cannot pin down. Both let a Tasmanian builder price a job that is not fully specified, and both are a common reason the final bill lands above the contract price.

Tasmania does legislate the regime. That is worth saying plainly, because it is easy to assume Tasmania leaves the whole thing to the contract. The Residential Building Work Contracts and Dispute Resolution Act 2016 (Tas) defines both terms and imposes a statutory warranty over how they are calculated. Then it stops. The mechanic owners care most about, the adjustment when the allowance turns out wrong, is not in the Act at all.

The two definitions

Section 4 defines a prime cost item as an item, including a fixture or fitting, that has not been selected or whose price is not known when the contract is entered into, and for the cost of supply and delivery of which a reasonable allowance is made in the contract by the builder.

Section 7 defines a provisional sum as the builder's estimate of the cost of performing part of the work, including the cost of supplying any materials needed. Section 7(3) is the limiting clause and it does real work: subsection (1) applies only if the builder, after making all reasonable enquiries, cannot state a definite amount when the contract is entered into. A provisional sum is not a device for deferring a price the builder could have fixed.

The calculation warranty

Section 30 is the enforcement hook. Where a contract provides for a provisional sum or a prime cost item, the builder warrants that it was calculated with reasonable care and skill, having regard to all the information reasonably available when the contract was entered into, including information about the nature and location of the building site.

Section 30(3) supplies a safe harbour. A provisional sum is taken to be calculated with reasonable care and skill if the builder based it on written advice from the designer or the owner, or on an amount specified in a schedule to a design or a tender.

This is a statutory warranty under Part 6, so it applies whether or not the contract writes it in. It passes to later owners under section 31. Proceedings for breach must be commenced within 6 years after the date of practical completion under section 32.

Disclosure comes from the Determination

The Act never requires a prime cost or provisional sum schedule. That duty sits in the Director of Building Control's Determination on Mandatory Contract Provisions. The power behind that Determination moved on 1 July 2024. Section 14(2), under which it was originally made in December 2016, was omitted, and section 11A(2)(a) now lets the Director determine the provisions that must be included in a residential building work contract. Section 11A(6) carries the existing Determination across, so it stays in force, and section 14(1)(i) is what obliges the contract to set out the provisions it specifies. The Determination requires the contract to clearly state all prime cost item and provisional sum components including the method by which they were calculated. Totals must be listed in Prime Cost Item and Provisional Sum Schedules that form part of the contract or are annexed to it. The contract must also carry a price warning that names the actual costs of these allowances differing from the estimates as a reason the price may move.

So the regime is a hybrid. The Act supplies the definitions and the warranty. The Determination supplies the disclosure. Read only the Act and you would wrongly conclude Tasmania asks for no schedule at all.

The margin is disclosed, not capped

The Determination's worked schedules require the builder's margin to be stated as a dollar amount or a percentage to be added, with the totals included in the contract price. Nothing in the Act or the Determination caps that margin. Tasmania is not unusual here. Victoria does not cap the margin either. Disclosure is the control, not a ceiling.

Over-runs, under-runs and the dispute risk

Here is the gap that matters. No Tasmanian provision states what happens when the actual cost of a prime cost item or provisional sum differs from the allowance. There is no statutory formula adding the excess or crediting the saving back to the owner. That adjustment lives entirely in the contract, which is why the Determination compels a price warning rather than legislating the arithmetic. A Tasmanian contract that is silent on the adjustment has a real hole in it.

For a builder, an optimistic allowance is not a pricing tactic. It is a warranty breach waiting to surface. An owner arguing the allowance was never realistic is alleging a section 30 breach, and that is a dispute the Director of Building Control can mediate and TASCAT can determine.