Provisional sum
Provisional sum this is a specific sum included in the bid documents. It indicates to the bidder that it is contemplated that the particular work referred to will be carried out, but that, at present, no firm plans have been made as to cost, and usually the work has not been detailed either. The contractor is not entitled to profit or on-cost, unless the works go ahead. An example of this would be a general intention by the client to provide special ventilation to a laboratory, which is part of a larger scheme, but that no firm plans as to the full requirements have been drawn up at the time of inviting bidder.
Let us assume that $100000 has been included as a provisional sum. Later, a scheme is produced and priced up by the successful bidder, and his price is $95000, including profit and on-cost. Then at the end of the contract, when the final account is submitted, the contractor will show that of the $100000 provisional sum. $95000 has been spent, and the client will be $5000 better off than expected[1].
Types of provisional sum
Provisional sum are included in bills of quantities for items of work which cannot be fully described or measured in accordance with the rules of the method of measurement at the time of tender. For work measured under the rules of SMM7, three are types provisional sum[2]:
- Provisional sum for defined works - This provisional sum is used where works are known to be required in the project but have not been fully designed or specified at tender stage, and so cannot be measured in detail. The contractor must make due allowance for the planning engineering, project scheduling and pricing preliminaries: and to enable him to do so the following information must be provided with the provisional sum:
- the nature of the work
- how and where it is to be fixed
- quantities showing the scope and extent of the work
- limitations on method, sequence and timing
- Provisional sum for undefined works - Where the information required in support of a defined provisional sum is not available, the provisional sum is' undefined' and the contractor is not required to include any duration for the work in the tender works programme, nor to take account of the costs of planning engineering, project scheduling or preliminaries. Undefined provisional sum are typically used to make contingent provision for possible expenditure on elements of work which cannot be wholly foreseen at tender stage or cannot be quantified. A client's contingency sum is deemed to be an undefined provisional sum.
- Provisional sum for works by statutory authorities - SMM7 makes provision for a provisional sum to be included in a bill of quantities which is neither 'defined' nor 'undefined', for work to be carried out by the local authority or statutory undertakings, including privatized services authorities carrying out statutory works.
- Incorporating provisional sums in an estimate - Although not strictly required by SMM7, it is common for items to be measured to enable the contractor to price attendance and profit on works by statutory authorities as though they were nominated sub-contractors. It should be noted that these provisional sums are net and do not include a contractor's discount.
Programming of provisional sums
The question of whether the contractor is obliged to include in his programme for work in a provisional sum has not been satisfactory resolved. Nor has the follow-on question - is the contractor entitled to an extension of time for carrying out work in a provisional sum?
It is sometimes argued that the contractor should not be expects to programme work which may never be carried out and the ordering of any work under a provisional sum should be regarded as extra. It is suggested that this argument is flawed. The work in a provisional sum is part of the contract work and it is not a variation when it is ordered albeit that it may be valued as one. Moreover, there are no provisions in clause 44 for extending time for the work in provisional sums. Probably the best the contractor can do is to argue that an instruction under clause 13. Then to the extent that the timing of the instruction or its contents delays or disrupts his arrangements he is entitled to recover any extra cost which could not have been foreseen at the time of tender. He is also entitled to an extension of time.
The contractor is, of course, on stronger ground if the value of work exceeds the provisional sum. It can then be argued that the provisional sum is the limit of what the contractor has undertaken to perform and any excess must be in the nature of a variation[3].
Examples of Provisional sum
- A painting contractor providing a provisional sum for painting a building. This provisional sum would include any necessary preparation work such as scraping, sanding, filling and priming.
- A landscape contractor providing a provisional sum for a garden design. This provisional sum would include any necessary groundwork such as site clearing, soil preparation, paving and fencing.
- A construction contractor providing a provisional sum for a new bathroom. This provisional sum would include any necessary demolition work, plumbing, tiling and electrical work.
- An electrical contractor providing a provisional sum for a new lighting installation. This provisional sum would include any necessary wiring, fixtures, fittings and switches.
- A roofing contractor providing a provisional sum for a new roof. This provisional sum would include any necessary structural work, tiles, underlayment and ventilation.
Advantages of Provisional sum
One of the main advantages of Provisional sum is that it allows for the quick and efficient procurement of works prior to the detailed design and specification of a project. This way, the project can move forward without delay, and the client is able to make decisions about the project based on the available information. Additionally, provisional sum can also help to limit the clients risk and exposure, as the contractor is not entitled to profit or on-cost unless the works go ahead. Some other advantages of provisional sum include:
- Flexibility - Provisional sum enables the client to have an estimate of the cost of a project, but also allows for the flexibility to change the scope and nature of the work as the project advances.
- Planning and Budgeting - Provisional sum can help with planning and budgeting, as it allows the client to estimate the overall cost of the project without having to commit to a specific cost.
- Allows for Contingency - Provisional sum also allows for the inclusion of a contingency cost to help cover any unexpected costs which may arise during the project. This helps to reduce the risk of budget overruns.
Limitations of Provisional sum
- Provisional sums often do not include costs associated with any changes to the design or scope of the works, such as additional drawings, additional materials, or additional labor.
- Provisional sums are not typically detailed and may not reflect the full scope of the project. This means that the contractor may not have a full understanding of the scope of the project and the costs associated with it.
- Provisional sums are often not included in the tender documents and therefore may not be taken into consideration when pricing the project.
- Provisional sums can be difficult to manage as there is often no clear timeline as to when the works should be completed and no definitive budget for the project.
- Provisional sums also lack any form of insurance or guarantees, leaving the contractor vulnerable to changes in the scope of the project.
A Provisional sum is a sum included in the bid documents that indicates to the bidder that a particular work referred to will be carried out, but that no firm plans have been made as to cost, and usually the work has not been detailed either. However, there are other approaches that could be used in lieu of a Provisional sum. These are:
- Lump sum contract - this is a fixed sum contract where the contractor agrees to build the works for a fixed price, regardless of any variations or changes that may occur during the course of the project.
- Re-measurement contract - this is a type of contract where the contractor is paid based on the actual quantity of materials used in the project and the actual time taken to complete the works.
- Cost Plus contract - this is a contract where the contractor is paid an agreed fee plus the cost of any materials used in the project.
- Time and materials contract - this is a contract where the contractor is paid based on the actual time taken to complete the works and the materials used in the project.
In summary, there are a variety of approaches to be used in lieu of a Provisional sum, including lump sum, re-measurement, cost plus and time and materials contracts. These all offer clients different ways of allocating risk and responsibility when it comes to the cost of a project.
Footnotes
| Provisional sum — recommended articles |
| Firm fixed price contract — Construction management contract — Commencement date — Unit price contract — Forms of contract — Task order — Tender document — Cost reimbursement — Bid documents |
References
- Eggleston B., (2008). The ICE Conditions of Contract , John Wiley & Sons, Oxford.
- Code of Estimating Practice , (2009), John Wiley & Sons, Chichester.
- Mobley R.P., (2010). Plant Engineer's Handbook , Elsevier, Wildwood.
Author: Dominika Grzyb
