Prime Cost Items and Provisional Sums in Victoria

What it is

A prime cost item is an allowance for a thing. A provisional sum is an allowance for work. Both price a Victorian domestic building contract around something nobody can pin down at signing. Division 4 of Part 2 of the Domestic Building Contracts Act 1995 (Vic), sections 20 to 23, controls how they behave. It applies to every domestic building contract, not only major ones: the $10,000 threshold that gates the section 31 formalities does not gate these sections.

What counts as which

Consumer Affairs Victoria draws the line the way the Act does:

• Prime cost item: a fitting included in the contract where the client has not selected the actual item, or the price is not known at signing. A basin is the standard example.
• Provisional sum: a reasonable estimate of the cost of carrying out work where the builder cannot give a definite price at signing. Air conditioning supply and installation is the standard example.

Section 31(1)(o) forces both phrases into the definitions section of any major domestic building contract, so the owner can look them up in the document they signed.

The allowance has to be real

Section 21(1) makes it an offence, carrying 35 penalty units, to enter a domestic building contract containing an amount or estimated amount for a prime cost item that is less than the reasonable cost of supplying the item, or for a provisional sum that is less than the reasonable cost of the work.

Section 21(3) says how reasonable cost is judged: by the information the builder had, or reasonably should have had, at the date the contract was made, plus the nature and location of the building site. Build on a steep or rural block and the allowance must carry the transport and access cost. Section 21(2) carves out items the owner supplies or specifies.

Section 20 implies a warranty into every domestic building contract: the builder warrants that any provisional sum it included was calculated with reasonable care and skill, taking account of all information reasonably available at the contract date. Note the asymmetry. Section 20 covers provisional sums. It says nothing about prime cost items.

How Victoria regulates the margin

This is the part builders usually get wrong. Victoria puts no number on the builder margin for a prime cost or provisional sum over-run. It regulates the margin by forcing disclosure of the method before anyone signs.

Section 22(a) requires a major domestic building contract to carry a separate schedule for each item or sum setting out:

• a detailed description of the item, or of the work the sum relates to
• a breakdown of the cost estimate, showing at least the estimated quantities of materials and the unit cost to the builder
• if the builder proposes to charge any amount in excess of the actual amount of any increase to the item or sum, how that excess amount is to be determined

That third limb is the margin rule. Section 22(b) applies the same disclosure to non-major contracts, by way of a written document handed over before signing. Either way the penalty is 50 penalty units.

The consequence is commercial rather than criminal. A builder who never wrote down how the excess is calculated has no contractual footing for charging one.

Adjusting the price when the real number lands

Section 23 is the accountability provision. The builder must give the owner a copy of any invoice, receipt or other document showing the cost to the builder of any prime cost item, or relating to any provisional sum, as soon as practicable after receiving it. Penalty 20 penalty units.

If the actual cost lands above the allowance, the owner pays the difference plus whatever excess the section 22 schedule disclosed. If it lands below, the price comes down by the difference. An under-run is not the builder windfall some contracts pretend it is.

Where the disputes come from and how Victoria differs

The pattern is predictable. A builder wins a job on a thin PC schedule, the owner selects real tapware, the price climbs, the owner says they were low-balled. Section 21 turns that grievance into a statutory one. Section 20 adds a warranty claim on the provisional sum side. Section 23 supplies the invoices to prove the gap.

The Victorian answer to an unrealistic allowance is therefore not that the market moved. It is section 21(3): what did the builder know, or reasonably should have known, on the day the contract was made.

The distinctive Victorian move is the section 22(a)(ii) cost breakdown. Requiring estimated quantities and the builder unit cost inside the contract schedule is open-book disclosure well beyond what a fixed-price residential contract normally carries. The margin is not capped. It is visible.