Some important tips on using PC and PS Items

and calculating your margin

Prime Cost and Provisional Sum items in a contract are important ways to protect your profit
margin when there are unknown factors in the contract price. While Prime Cost and Provisional
Sum items are useful, they can often be confusing and occasionally be misused.

The guide below is a refresher on when to use Prime Cost and Provisional Sum items and how to
calculate them.

What is a Prime cost Item?

A Prime Cost (PC) item is an allowance in the contract for fixtures and fittings that the owner is to
select after the contract has been signed. This may include special kitchen and bathroom items.

What is a Provisional Sum Item?

A Provisional Sum (PS) item is generally included in the contract in circumstances where the
builder is unable to give a definite price for aspects of the work and where the owner is still to make
some choices about the items and work to be done.

PS items include work (i.e. materials and labour), while PC items are for items only.

Examples of PS items include driveways where the size and finish of the item has not been
completed.

How do I calculate PC and PS items? What do I do about the margin?

If you are relatively new to the building trade, the word “margin” used in this sense can be a little
confusing.

Your allowance for the PC or PS Item must be a reasonable estimate of the cost. Any allowance for
your margin should be included in the overall contract price, not in the allowance itself

Your builder’s margin is a percentage markup on your direct costs and is designed to cover not only
your profit, but needs to include the indirect costs of your business as well. Indirect costs are those
business expenses and overheads that are not immediately obvious or directly attributable to the
goods or services being provided. Examples would include: accounting fees, office expenses,
license registration costs, advertising, etc

If, as per the example below, you have a PS allowance of $3,000 to supply and install an electric
cooktop and stove, this allowance does not include your margin of say, $600 which should be
covered in the total contract price:

How do you calculate the PC/PS Items?

Here are some simple tips:

1. If your actual cost plus the builder’s margin is less than the provisional sum allowance, the
difference is deducted from the contract price.
2. If the actual cost plus the builder’s margin is more than the provisional sum allowance, the
difference is added to the contract price.
3. Payment for any adjustments to the contract price must be made at the next progress payment
stage.
4. Your margin amount will vary from job to job. (HIA contracts include an amount in the
schedule to insert for the margin on PS/PC items should the reasonable estimate of the PC Item
blow out).

An example of how to do the calculation:

In your contract, you have estimated the contract price attributable to a Provisional Sum item to be
$3,000. However it has actually cost you $4,000. This how you work out the difference:

Example : PS item allowances

Detailed Estimated Estimated Allowance Builders Actual Difference Total cost
Description Quantity $ per Item Margin cost
of Work Allowed on Excess
For
Supply and 1 $3,000 $3,000 30% $4,000 $1,000 $4,300
installation ($4,000 actual
of an electric cost plus
stove, cook- margin of
top and $1,000 x 30%)
oven.

Your HIA Workplace Adviser can help you if you are having trouble with working out your PC and PS items.

HIA Training Services also regularly run contracts training courses to assist members with administering
their contracts.

To contact an HIA Workplace Adviser, or to speak to a Training Consultant, call 1300 650 620 or email
your enquiry to enquiry@hia.com.au