A provisional sum is a budgetary reservation in a quotation or contract agreement for components that are not yet definitively specified at the time of contracting. In practice, the provisional sum often functions as a risky final piece of the construction budget: it allows parties to sign a contract without every aesthetic detail (such as wall tiles, sanitary ware, or kitchen furnishings) being fixed, but shifts the financial risk of price increases and execution complexity directly to the client.
The Strategic Reality of Provisional Sums
For the client, a provisional sum seems to offer flexibility. However, the reality is that provisional sums are often used strategically to keep the initial contract sum artificially low. An underestimated provisional sum (for example, €500 for the wall tiles of a complete bathroom) makes for an attractive total amount, but guarantees discussions and budget overruns during execution.
The mechanism is simple: as soon as the actual choice is made and it turns out to be more expensive than the provisional sum, the difference is invoiced as additional work. Moreover, contractors often charge an additional profit and risk surcharge (usually 10%) on this additional work in accordance with the contract agreement.
Types of Provisional Sums: Definition & Risk
Contractually, we distinguish three main forms. Recognizing the difference is crucial for your cost control:
1. Provisional Sum for Delivery Only
Here, the amount only covers the purchase of the material (the physical tiles or faucets). The labor costs for installation are included in the fixed contract sum. Strategically, this is the least risky variant for the client, because the labor risk remains with the contractor.
2. Provisional Sum for Delivery and Processing
This variant is an "open-ended" arrangement. Both the material price and the labor hours are settled afterward. If you choose a tile that needs to be laid in a herringbone pattern instead of straight, you not only pay for the more expensive tile, but also the extra labor hours. This is the primary source of budget overruns.
3. The Estimate
A non-binding estimate without a firm settlement agreement. Legally the weakest form and often avoided in formal contracts (such as STABU or RAW) in favor of formal provisional sums.
Provisional Sum vs. Fixed Contract Sum
The choice between a provisional sum and a fixed amount is a choice in risk allocation.
Characteristic | Provisional Sum | Fixed Contract Sum |
|---|---|---|
Financial Security | Low (Client bears risk) | High (Contractor bears risk) |
Flexibility | High (Postpone choices until the execution phase) | Low (Everything definitive before signing the contract) |
Settlement | Transparent based on receipts + surcharge | No settlement (risk/profit contractor) |
Strategic Advice for Clients
Do not accept provisional sums blindly. Use these tactics to strengthen your position:
Demand a "Delivery Only" clause: Limit the provisional sum to only the material costs. Enforce that the labor costs (the "processing") are included in the fixed contract sum. This prevents discussions about slow assembly or inefficiency.
Specify the price level: Include in the description what the quality requirement is (e.g., "Provisional sum for wall tiles based on Mosa quality, size 60x60"). This prevents the contractor from budgeting for the cheapest hardware store tile.
Buy off labor: Don't you know exactly which kitchen it will be, but do you know that it needs to be installed? Agree on a fixed amount for the installation, regardless of the brand of kitchen you choose later.
Settlement in Practice
The final settlement takes place at the final delivery:
Are the actual costs higher than the provisional sum? You pay the difference plus any contractor fee (profit & risk).
Are the actual costs lower than the provisional sum? You will get the difference back as reduced work. Note: often the contractor's fee is not credited here, unless explicitly agreed.
Frequently Asked Questions about Provisional Sum
Does a Provisional Sum include installation?
It depends on the scope definition. A 'Supply Only' allowance covers materials, keeping installation fixed. A comprehensive allowance covers both, exposing you to the risk of labor cost overruns.
Can the contractor charge profit on Provisional Sums?
Yes, contractors typically add a markup for overhead and profit (OH&P) to the final actual cost of the work executed under a provisional sum. This percentage should be capped in the contract.
What is the risk of an Undefined Provisional Sum?
If the work is 'undefined', the contractor hasn't accounted for it in their schedule. Instructing this work later can lead to claims for delay and extension of time, significantly increasing costs beyond just the material price.
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