Warning "The PC/Provisional Sum"

kkelliher

Just a warning to all of those who are contracting builders to carry out work.



Please Please Please try and understand the PC SUM & PROVISIONAL SUM issues that exist in Contracts. I have already this week had 4 calls from people in trouble financially in respect to increased costs on projects as a resut of increased prices from tender as a result of increases in the PC SUM and PROVISIONAL SUM alllowances that the Contractor allowed.



A PC SUM is an allowance made by an Architect or a builder in the price for a specialist contractor or specialist supplier. In most cases a PC SUM is allowed for electrics, plumbing, heating, kitchens, Windows etc etc. It is allowed on a lump sum provisional basis and the Client is responsible for the actual end cost of the item plus 5% for the Main contractor



It is in the Contractors interest in the tender process to keep this figure as low as possible as it makes his overall figure lower even if it is well known that the provisional cost is insufficient.



A Provisional Sum is similar but is for items that cannot be fully detailed or priced at the time of tender. Again the final price will be borne by the Client at the end of the day



It should be made aware to all Clients that these items need to be investigated in tenders and a like with like allowance should be made for all contractors in respect to these issues. A Clients representitive should always try and place a realistic value against these items in order to provent such movement throughout the currency of the Contract.



Sorry for the drawn out note but people should and need to be aware of the Contractual impact of PC and Provisional Sums

RenoAl

Many Thanks kkelliher. invaluable post for me.

I recently walked through my project with the Architect and 5 different builders before tender submission due this Friday and had no idea what the difference between PC Sum and Provisional Sum.

If I have this right, a PC sum allows a 5% add on by the contractor while a Provisional Sum is only an indication of the likely cost? Both are only estimates and are unlikely to be exact until the final account is settled.

kkelliher

yes but they are both just lump sum figures and you need to decide how indicitive of the final cost they are from the outset. This requires examination in detail of the requirements in each item in order to put as near an estimate as possible as you can on the cost so as to be as clear as possible for you instead of waiting until the end and finding out that you have a huge variance in the price.

sydthebeat

theres some confusing info here.

both 'Prime Cost' sums and 'Provisional Cost' sums can be referred to as PC sums, and the exact definitions for same should be first searched for in the definition of the contract.

in my experience theres very little difference in reality in the industry between the two, and they both are commonly referred to as PC sums. My own understanding is that 'prime cost' generally refers to specifics which are on plans but not detailed in a specification ie toilet pan in wc. The cost could range from €50 - €1000 so the builder puts in a Prime Cost sum of say €50, on the understanding that if a more expensive product is chosen by the client, then he/she bears this extra cost.

'provisional costs', in my understanding, generally tend to refer to works which are difficult or impossible to quantify and as such a provisional cost is applied, and sometimes a pro rata cost as well for hidden works. for example a new house has a raft foundation proposed by after tendering its discovered that theres a huge rock which needs to be removed. The contractor would include a provisional cost for the raft, but the extra costs for removing / filling of the rock is borne by the client. These costs are the ones which tend to lead to problems at final account stage because of a few common problems:
1. the builder does not provide a quotation for the extra works prior to carrying them out.
2. the certifying architect / engineer and or client doesnt 'sign off' the extra costs prior to carrying out.


It should be said that when investigating tenders, a 'reasonable cost' should be applied to either of these PC sums... and i have seen jobs lost by contractors for having PC sums so low as to make them unachievable.
This is another reason to have a competent professional employed at post planning stage and not just for final certification.

kkelliher

sydthebeat wrote: »

theres some confusing info here.

both 'Prime Cost' sums and 'Provisional Cost' sums can be referred to as PC sums, and the exact definitions for same should be first searched for in the definition of the contract.

Syd this is not contractual correct and it goes to the heart of why this issue arises so often. They are completly different items for completly different contractual reasons. They are not and should not be classed as the same items as they are dealt with completly differently within the standard building contract. I have never seen a contract where the wording on these items has been changed and do not undertsnad why this would be so

sydthebeat wrote: »

in my experience theres very little difference in reality in the industry between the two, and they both are commonly referred to as PC sums. My own understanding is that 'prime cost' generally refers to specifics which are on plans but not detailed in a specification ie toilet pan in wc. The cost could range from €50 - €1000 so the builder puts in a Prime Cost sum of say €50, on the understanding that if a more expensive product is chosen by the client, then he/she bears this extra cost.

a PC SUM is an item of money allowed against the specific supply of a product or specialist service which may or may not have been selected at the time of tender. The general use of a PC SUM is to make sure that a specific product or contractor is used for the work based on a previous relationship or specialisim

sydthebeat wrote: »

'provisional costs', in my understanding, generally tend to refer to works which are difficult or impossible to quantify and as such a provisional cost is applied, and sometimes a pro rata cost as well for hidden works. for example a new house has a raft foundation proposed by after tendering its discovered that theres a huge rock which needs to be removed. The contractor would include a provisional cost for the raft, but the extra costs for removing / filling of the rock is borne by the client. These costs are the ones which tend to lead to problems at final account stage because of a few common problems:
1. the builder does not provide a quotation for the extra works prior to carrying them out.
2. the certifying architect / engineer and or client doesnt 'sign off' the extra costs prior to carrying out.

Correct but it is not specific to a product or a service. It is for works undefined at the time of tender and is to be expended solely at the descretion of an Architect/Client

sydthebeat wrote: »

It should be said that when investigating tenders, a 'reasonable cost' should be applied to either of these PC sums... and i have seen jobs lost by contractors for having PC sums so low as to make them unachievable.
This is another reason to have a competent professional employed at post planning stage and not just for final certification.

.

muffler

kkelliher I have "unapproved" your last post as it breaches the forum charter. Please read same particularly Section 1.6.

Copy and paste the quoted post into your reply and repeat as necessary adding quote tags


Edit/ I've changed that for you now.

kkelliher

muffler wrote: »

kkelliher I have "unapproved" your last post as it breaches the forum charter. Please read same particularly Section 1.6.

Copy and paste the quoted post into your reply and repeat as necessary adding quote tags


Edit/ I've changed that for you now.

Apologies muffler and appreciate the assistance

muffler

kkelliher wrote: »

Apologies muffler and appreciate the assistance

No problem.

Just for the benefit of anyone and everyone who may not be sure about multi-quoting, inserting quote tags, uploading pics, inserting hyperlinks etc etc there is some good info here especially in the FAQ threads that are at the top of the page.

There is also a test forum where you can practice away till the cows come home.

bruschi

kkelliher wrote: »

Just a warning to all of those who are contracting builders to carry out work.

It is allowed on a lump sum provisional basis and the Client is responsible for the actual end cost of the item plus 5% for the Main contractor

RenoAl wrote: »

If I have this right, a PC sum allows a 5% add on by the contractor

and another warning as the above is not now technically correct with the most recent forms of RIAI contract 2011. the 5% provision for MCD (Main Contractors Discount) is no now longer included in the PC Sum, so there is no provision for the contractor to be paid additional money, or be paid any of the PC Sum amount unless he specifically adds it in.

http://www.riai.ie/uploads/files/Text%20for%20Advice%20Note%20to%20Changes%20to%20Yellow%20Form%202011-update(2).pdf

Page 7: Nominated Sub-Contractors – 16 (b)
The provision for cash discounts has been removed, and the following text has been added:
“materials or goods less only any retention money which the Contractor may be entitled to deduct;”

Nominated Sub-Contractors – 16 (b)
The provision for cash discounts has been removed, and the following text has been added:
“pay to such Nominated Sub-Contractor the full amount so certified whereupon the “Limit of Retention Fund” named in the Appendix hereto shall be reduced in proportion to the amount so certified and the Contractor shall be discharged from all liability for the work or materials covered by such certificate except for any latent defects;”

just when you are warning people about PC Sums and Provisional sums, the above has been the biggest change in contracts and one that is causing a lot of issues as some contractors had previously been writing off the 5%, or maybe a portion of it, but in any contract now under the 2011 guidelines that obviously cant work anymore.

kkelliher

bruschi wrote: »

kkelliher wrote: »

Just a warning to all of those who are contracting builders to carry out work.

It is allowed on a lump sum provisional basis and the Client is responsible for the actual end cost of the item plus 5% for the Main contractor

RenoAl wrote: »

If I have this right, a PC sum allows a 5% add on by the contractor

and another warning as the above is not now technically correct with the most recent forms of RIAI contract 2011. the 5% provision for MCD (Main Contractors Discount) is no now longer included in the PC Sum, so there is no provision for the contractor to be paid additional money, or be paid any of the PC Sum amount unless he specifically adds it in.

http://www.riai.ie/uploads/files/Text%20for%20Advice%20Note%20to%20Changes%20to%20Yellow%20Form%202011-update(2).pdf

Page 7: Nominated Sub-Contractors – 16 (b)
The provision for cash discounts has been removed, and the following text has been added:
“materials or goods less only any retention money which the Contractor may be entitled to deduct;”

Nominated Sub-Contractors – 16 (b)
The provision for cash discounts has been removed, and the following text has been added:
“pay to such Nominated Sub-Contractor the full amount so certified whereupon the “Limit of Retention Fund” named in the Appendix hereto shall be reduced in proportion to the amount so certified and the Contractor shall be discharged from all liability for the work or materials covered by such certificate except for any latent defects;”

just when you are warning people about PC Sums and Provisional sums, the above has been the biggest change in contracts and one that is causing a lot of issues as some contractors had previously been writing off the 5%, or maybe a portion of it, but in any contract now under the 2011 guidelines that obviously cant work anymore.

Points well noted however the new form is not yet generally in common use. I have only come across 1 architect using it and a recent discussion i had with an architect outlined that it was their belief along with others that the old form would be in use for a good while to come

Augusta11

Hi,

I'm wondering can anybody can help me with this hypothetical query?

Sorry if it is a bit long winded or hard to understand.

If you are using a building contractor for the majority of a new build and you get your architect to tender it out to a list of builders and you have requested them to include a PC sum set aside of 50,000 for windows, doors, paint, entrance gates etc that you will go buy yourself, I'm wondering if the total price came to 249,700 inc VAT (this includes the PC sum of 50,000) does this mean you would actually be paying VAT twice on the items you will be buying and have put aside in the PC sum?

For example the price would be 220,000 excluding VAT then when VAT @ 13.5% is added to this figure it would come to a total of 249,700.

But if the PC sums where not included in the tender then the price the contract builder would be quoting would be 220,000 minus 50,000 PC sum = 170,000 excluding VAT then when VAT @ 13.5% is added to 170,000 it would bring the price to 192,250 inc VAT. Then if you added the PC sum separately it would be a total of 242,950. This would be a difference of 6,750 from the overall price.

Can it be done this way?? If not then am I right in thinking you are basically paying VAT at top rate when buying windows etc and then paying VAT again on these items at standard rate when the VAT is added by the builder for the total price?

Cheers if anyone can explain or help with this query

kkelliher

Augusta11 wrote: »

Hi,

I'm wondering can anybody can help me with this hypothetical query?

Sorry if it is a bit long winded or hard to understand.

If you are using a building contractor for the majority of a new build and you get your architect to tender it out to a list of builders and you have requested them to include a PC sum set aside of 50,000 for windows, doors, paint, entrance gates etc that you will go buy yourself, I'm wondering if the total price came to 249,700 inc VAT (this includes the PC sum of 50,000) does this mean you would actually be paying VAT twice on the items you will be buying and have put aside in the PC sum?

For example the price would be 220,000 excluding VAT then when VAT @ 13.5% is added to this figure it would come to a total of 249,700.

But if the PC sums where not included in the tender then the price the contract builder would be quoting would be 220,000 minus 50,000 PC sum = 170,000 excluding VAT then when VAT @ 13.5% is added to 170,000 it would bring the price to 192,250 inc VAT. Then if you added the PC sum separately it would be a total of 242,950. This would be a difference of 6,750 from the overall price.

Can it be done this way?? If not then am I right in thinking you are basically paying VAT at top rate when buying windows etc and then paying VAT again on these items at standard rate when the VAT is added by the builder for the total price?

Cheers if anyone can explain or help with this query

Just to start with pointing out a slight technical issue with your thread. A PC SUM if a sum allowed in the contract for specialist works by a specialist company chosen by your or your architect. In your case windows. The PC SUM is inlcuded in order to tie the window installation into the main contract. You should not in theory be paying for the windows yourself as a result as they should be ordered and paid by the Main Contractor through the contract and you pay him.

In relation to VAt. If the PC SUM is specified at €50,000 in the contract, then this is a net of vat figure. This figure can change as items are picked but it should always be net of vat. The only VAT payable should be 13.5% on whatever the total cost of the build is to the builder. Therefore if for example the total net cost of all your PC SUMs is €50,000 you will pay the builder €50,000 plus 13.5%

If you purchase items yourself outside of the Contract you will pay 23% on supplies and 13.5% on labour installation contracts.

Augusta11

Thanks alot KKelliher for making that clearer for me.

Much appreciated!

Augusta

jblack

Bowmer & Kirkland v St Modwen Developments.

When even a QS makes a horlicks of PC v Provisional...

moldy_sea

kkelliher wrote: »

Just to start with pointing out a slight technical issue with your thread. A PC SUM if a sum allowed in the contract for specialist works by a specialist company chosen by your or your architect. In your case windows. The PC SUM is inlcuded in order to tie the window installation into the main contract. You should not in theory be paying for the windows yourself as a result as they should be ordered and paid by the Main Contractor through the contract and you pay him.

In relation to VAt. If the PC SUM is specified at €50,000 in the contract, then this is a net of vat figure. This figure can change as items are picked but it should always be net of vat. The only VAT payable should be 13.5% on whatever the total cost of the build is to the builder. Therefore if for example the total net cost of all your PC SUMs is €50,000 you will pay the builder €50,000 plus 13.5%

If you purchase items yourself outside of the Contract you will pay 23% on supplies and 13.5% on labour installation contracts.

Is this correct?

A bathroom supplier is charging €100 for a toilet ex. VAT.
Joe Public would pay €123 i.e. €100 + VAT @23%

Consider there is a PC SUM of €200 for toilets.
If this same toilet is purchased against a PC SUM does it consume €100 or €123 of the PC SUM.

Gumbo

moldy_sea wrote: »

Is this correct?

A bathroom supplier is charging €100 for a toilet ex. VAT.
Joe Public would pay €123 i.e. €100 + VAT @23%;

Consider there is a PC SUM of €200 for toilets.
If this same toilet is purchased against a PC SUM does it consume €100 or €123 of the PC SUM.

This post is from 2012. Might be different now.

DOCARCH

moldy_sea wrote: »

Consider there is a PC SUM of €200 for toilets.
If this same toilet is purchased against a PC SUM does it consume €100 or €123 of the PC SUM.

Does the PC Sum include or exclude VAT?

moldy_sea

DOCARCH wrote: »

Does the PC Sum include or exclude VAT?

If I followed along correctly from the earlier posts it does not include VAT. See kkelliher 19-04-2012, 12:36

You asking if it does or does not include VAT is interesting.

BryanF

moldy_sea wrote: »

If I followed along correctly from the earlier posts it does not include VAT. See kkelliher 19-04-2012, 12:36

You asking if it does or does not include VAT is interesting.

You haven’t started getting quotes yet?

DOCARCH

moldy_sea wrote: »

If I followed along correctly from the earlier posts it does not include VAT. See kkelliher 19-04-2012, 12:36

You asking if it does or does not include VAT is interesting.

PC Sums are included in a quote and/or a contract.

It should specify whether the PC Sum includes or excludes VAT.

kkelliher

moldy_sea wrote: »

Is this correct?

A bathroom supplier is charging €100 for a toilet ex. VAT.
Joe Public would pay €123 i.e. €100 + VAT @23%

Consider there is a PC SUM of €200 for toilets.
If this same toilet is purchased against a PC SUM does it consume €100 or €123 of the PC SUM.

You pay €100 against the PC SUM Item but VAT will be added to the total value of the builders works of which the PC SUM will be part at 13.5% so the toilet should in theory actually cost you €113.50 gross plus a possible few % to the builder is he had allowed a mark-up against the PC SUM value in the original contract