Jacob Austin (00:00:17) - Hi, all. Jacob Austin here. Owner of QS.Zone. And welcome to episode 27 of The Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cashflow and grow their business. Today's episode, number 27, is about provisional sums. Now, there are a number of different ways that provisional sums or provisional items can be incorporated into a subcontract. And I'm going to explain the common ones of those so that you know what they are. You know how to price them, and then you know how to deal with them when you get to the job itself. So you'll commonly see PC Sums, which is a Prime Cost Sum. And that is slightly different to a Provisional Sum in its entirety. Provisional Quantities- and that really is what it sounds like it is. That is where somebody had a good stab at measuring exactly what they need, but for whatever reason, they can't fully establish the quantity that they're going to need. So they put Provisional Quantity in on the proviso that it is remeasured against the rate that you put against it.
Jacob Austin (00:01:23) - Then you've got Provisional Sums. And within Provisional Sums these can be split into defined Provisional Sums and undefined Provisional Sums. And the difference between the two is very important. It has significant programme implications and prelim implications. And it's important for you that when you're pricing work, you understand what those implications are and that you can price them accordingly. So let's start with Prime Cost Sums. I mentioned that one first. Now a Prime Cost Sum is a sum of money that gets included in an all in rate. And that sum provides for the supply of a piece of material that we haven't got the spec for yet. So an example of how this would come about bricks for the project. It's quite common that a planner would want to review and sign off on the quality of the bricks before they get built into the project, and so there would be some kind of planning condition saying materials must be submitted for review. So when it comes to pricing the job, the contractor has got to leave that element slightly up in the air.
Jacob Austin (00:02:26) - They might have a colour that they've got to try and achieve, but they don't have a specific brick that they say, go out and buy this one and price it into your work. You might get similar examples where your client wants to replicate something that they've got in an adjacent building, or if you're building an extension, they want the same product throughout, but they can't quite find the original details yet. And they say allow, I don't know, £20 to provide for the same door ironmonger as I had in my last building. And before you get to building it, I'll find out what the spec of that was. So the idea is that you take the £20 in that instance, you add to it your overhead and profit. You add to it your amount for fitting the item. You add to any sundry items that go alongside it. So going back to the bricks item, when you're pricing a square meter of bricks and you've been given a PC sum of, say, £400 a thousand for the supply of the bricks, everything else that you need to construct the brick wall, that your pricing needs to be included in that rate.
Jacob Austin (00:03:32) - So you need to price in your mortar, your ties, all of your labor, your supervision, new distribution elements, all of those need to be provided for so that you've got an all in rate. If this item comes in at £400, that's exactly how much it's going to cost. So it's a way of allowing a degree of flexibility over the finished product, but at the same time providing for the work. Then going back to our brick example. So the contractor has submitted four different bricks to the planner, and the planner has said I like this particular one, and that one costs £450 per thousand. So then between you and the contractor, you can sit down and omit the original brick quantity at £400 per thousand, along with your overhead and profit for that item, and then add back the same at £450 per thousand, adjusting your overhead and profit to suit, and you've got a full all in rate that replicates, then the supply and lay of the product that you've ended up with. And it's very likely that that provisional item will be replicated upstream to the client in the main contract, and they'll be able to use your revised rate to justify any change in rate to the client.
Jacob Austin (00:04:42) - Now, that itself isn't a Provisional Sum. It's a Prime Cost Sum. And I wanted to explain within this episode how to deal with that, because I have known of people assuming that they're all one in the same. And with that example there, there are things that you still have to work out and get right within your tender submission, because unlike a Provisional Sum where, the whole thing will be omitted, and then the actual cost of completing the work will be added back. The only bit of a rate with a Prime Cost Sum within it that gets adjusted is the Prime Cost Sum itself.
I also mentioned Provisional Quantities. Now these are something that is less frequently used than a Provisional Sum in my experience, but they are a very good way when you're placing a lump sum contract of including for some bits which you know are going to fluctuate without altering or deviating from the intention to submit a lump sum price or place a lump sum subcontract. And the intention with that is that you still have a provision for that work within your contract.
Jacob Austin (00:05:40) - You price a proper rate to complete the work that's being described. But let's say you just don't quite know how much of an area going to have to cover. So between you and the contractor, as you're putting the subcontract together, you have a best stab at what you think it might be, and you include that as the Provisional Quantity. Then when you get to completing that item, completing that piece of work, you remeasure it and you apply that same rate that you priced originally to the new quantity. So let's say you're the landscaping contractor. And during the course of the job, the contractor knows he's going to have quite a large area of turf, but he also knows that his temporary works that he's carrying out might destroy some of the existing turf, and it might also need replacing. So he's measured a best guess of how big his compound is going to be. Added that into the quantity of turf that he's asked you to price. And then when it comes to completing that work, you both go out there, remeasure how much you've done, and you apply that original rate to it.
Jacob Austin (00:06:37) - Now let's talk about Provisional Sums themselves. Now, the whole idea behind it is that it's a means of including a kind of a budget for some unknown bits of work, and getting that into the contract to give the client a bit of cost certainty that this is how much the job is going to cost. And I say a bit of cost certainty, because the whole idea is that this particular piece of work can fluctuate. So first, let's talk about a few examples of where I have seen Provisional Sums used and what they were for. So on one project I had a Provisional Sum for the entrance and the reception of a building and the client in this instance, whilst they knew they want some kind of reception desk, they want some kind of waiting area. They still hadn't decided what kind of quality, how big, how many people are going to have to work behind it, what kind of finishes they wanted to have on it. So they instructed the inclusion of Provisional Sum of £25,000 to pay for the reception area.
Jacob Austin (00:07:39) - Another example, and this is one that I've seen on a couple of jobs, is landscaping, because similar to the bricks scenario that we mentioned earlier, quite often the planner, whilst they don't want to actually design a landscaping scheme for a job, they want you to submit your proposals and be able to comment on it, be able to comment on the species that you're including, as well as the number and sizes of trees and so on. And sometimes, if the maintenance or the long term looking after of that site is going to fall to the local authority to deal with, then they'll want to know the maintenance plan for the various species you're planting as well. And all of that can leave the landscape design up in the air. So for the purpose of pricing the job, the employer knows, the client knows that they want something. They have to provide some landscaping. But again, they don't know how much. So I've seen that included as a Provisional Sum and ring fence is a bit of budget for the client, but it allows the flexibility for that to be determined.
Jacob Austin (00:08:39) - And the real cost of completing that work added back. So those are a couple of examples of why we end up with Provisional Sums in a contract. The next question is is your Provisional Sum defined or undefined? Now this is the really important question because we're a Provisional Sum is stated as defined. You as the subcontractor are deemed to have included within your programme and your planning and your prelims prices for the period of work that it will take for you to complete that provisional sum work. But for it to be a defined Provisional Sum, it must meet Four criteria. You must first know the nature and the construction of the work. There must be a statement of how and where the work is fixed into the building, and what are the work is going to be fixed to it. A quantity or quantities which indicate the scope and the extent of work should be provided, and any specific limitations must be identified. So let's just discuss that for a second. What we're saying is we don't have a full design for this piece of work, but we know what the nature of it is.
Jacob Austin (00:09:52) - We know what the construction of it is, we know what it's fixed to, and anything that's going to be fixed to it. We know quantities to indicate the scope and the extent of it, and we also know whether there's any specific limitations around us completing that piece of work. That is a hell of a lot of information. And this is why defined Provisional Sums are so incredibly rare. Because. If you've got all of that information, what is the point of there being a Provisional Sum at all? Because if you've got all of that, you can measure the work to start with and you can provide an accurate price for it. So the Provisional Sum element becomes completely redundant. Now, if you're getting a bill of quantities and it's got a defined Provisional Sum, in reality, what you are supposed to do is look at the drawings, look at the specification and include within your programme, within your prelims all of the costs and the on costs that you're going to need to successfully complete that piece of work, regardless of whether it's going to cost more or less than the Provisional Sum.
Jacob Austin (00:10:56) - Now, if the employer has provided all of that information, then that's all to the good. You can do that assessment and include for your site manager, your attendances and so on to complete that work. But now the problem is that quite often that information is lacking and you'll have somebody state, here's a Provisional Sum it's a defined Provisional Sum for X. But when you get the drawing out it says so-and-so work to be defined. See Provisional Sums or what I've seen on a drawing "landscaping details to be finalised, subject to planning". And they could well have made that a defined Provisional Sum in this instance. So they could have given a notional schedule. I want so many trees, so many Whips, so much hedgerow, so many shrubs and this many of floral plants. There'll be approximately so many square meters of mulch to cover it. The limitations are that the trees must be planted within the planting season, and the turf that is needed must be planted within or laid within grass growing months, and that would have left the spec of each item in flux.
Jacob Austin (00:12:01) - But it would have given so much information that you could have a really good stab at the programme. So in that instance, they probably could have made a defined Provisional Sum, but again, it would have been more sensible if you've got all of that information to measure it all and perhaps put some rates to provide for the supply of the trees, the shrubs and so on, and then you're at least capturing something more accurate. And that is the thing for all of this information to exist when there is still a Provisional Sum, it's so rare that you're barely ever going to come across it. So when you get a pricing document and you see the phrase defined Provisional Sum, you have to look out for those four elements, and then the onus is on you to challenge whether it is a defined Provisional Sum or not. When you submit your quote. Now there's two things for me that you should be thinking about. One. Can I sensibly come up with a price and a programme that makes a sensible allowance for the work that I'm being asked to do as part of that Provisional Sum? And that's question number one, because if you were to put some price and programme to it, you would only be able to do so accepting a level of risk, because the point of the Provisional Sum is that that work isn't yet fully designed.
Jacob Austin (00:13:14) - And by putting your programme to it, you're basically hoping that whatever does get designed fits within the period that you come up with. Because if it doesn't, and you haven't challenged the Provisional Sum as to whether it's defined or not, then you're taking that on the chin. And that's up to you as to whether you decide to do that. What you could perhaps do, particularly if you're negotiating in a one on one situation where the contractor is, you could say explicitly in your quote, I've priced a period of X weeks to cover the work within the Provisional Sum, and should that vary due to the nature or the timing of the instruction and so on, then we reserve the right to revisit the X weeks of prelims and revise it accordingly, and I will try and leave that period up in the air. And if there is no way forward, no way that the contractor will agree to that, then I would exclude it altogether. And that brings me to item number two that you should be thinking about.
Jacob Austin (00:14:09) - Because if you're in a competitive situation, you want to think, is there enough information for the people that I'm bidding against to price the same prelims and the same inclusion for that Provisional Sum, because these are the kind of fine margins that can win or lose you a project. Because if you say, look at that piece of work and decide that it will take you four weeks, so you include for four weeks worth of management, four weeks of access equipment, four weeks of materials distribution, and so on. You put that in your price and then somebody else that you're bidding against doesn't. Then right away you don't look competitive. And then it's down to the contractor as to whether they pick up on that or not. And at some points of the job they might. But if they're procuring your package alongside five other packages, and they all need those trades to be on site within the next six weeks, then the chances are they're going to give it a cursory glance through, challenge a few of the assumptions and place the order with the most competitive man.
Jacob Austin (00:15:07) - And so for that reason, I would err on the side of leaving the prelims out. But what you must do is tell them that that's what you've done within the body of your quotation. And if the contractor sends you a pricing document and you must submit your quotation on that basis, then I would be writing a note to that effect on that pricing document as well as on the covering letter. And you're going to want to write something a little bit like the following. There is insufficient information within the tender pack to determine the nature and the construction of the Provisional Sum work, to identify the quantities or the scope and the extent of that scope, or to determine what the work is fixed to or is fixed to it, or there is no detail around the limitations for this work. So for the purposes of this tender, we have priced this as an undefined Provisional Sum and made no inclusion for the prelims or associated on costs with completing it. Now, all of that sounds like a bit of a mouthful.
Jacob Austin (00:16:05) - And maybe it is, but you don't want the contractor to be in any doubt as to why you've priced it, how you've priced it, or for them to misinterpret what you're saying. The next place would be to reinforce this at any pre start meeting that you attend and do it in the same basis. And if you receive an order and it says that a Provisional Sum is defined. But for any of the reasons we've previously mentioned it can't be treated as defined. Then you need to raise it when you're signing and returning that order both in the covering letter, when you send it back, and annotating on the order itself that this is an undefined provisional sum. And if you want to be highly technical and demonstrate the excellent commercial knowledge that you've been developing over the last few weeks, you can refer your contractor to the New Rules for Measurement part two or NRM2 for short, and refer them to rule 2.9.1.5. This is under the definitions for non measurable works. And that rule says any Provisional Sum given for defined work that does not comprise the information required under 2.9.1.2 shall be construed as a Provisional Sum for undefined work, irrespective that it was given in the BQ as a Provisional Sum for divined work.
Jacob Austin (00:17:23) - So what this is saying the RICS and the New Rules of Measurement support you in pricing provisional sums that have been incorrectly labeled as defined provisional sums, so that you can price them as undefined. Now, that won't stop some unscrupulous contractor out there from telling you it's a defined Provisional Sum and refusing to give you an extension of time for it. But these are the kind of disputes that can arise. And all I'm trying to tell you to do is to have the discussion upfront. When everything is friendly and rosy at the pre-order stage, rather than wait for it to become a problem down the line. And lastly, when it comes to pricing, Provisional Sums should be exclusive over overheads and profit. And that means to say that a separate item should be included for overheads and profit on the Provisional Sum. It's not actually included within the provisional sum itself. So how the Provisional Sums get operate and well, what you should be getting as an instruction from your contractor to complete the provisional some work. And that instruction should be confirming the drawings and the specification that you need to work to to complete that work.
Jacob Austin (00:18:31) - Now, what you don't want to happen is to get to the end of the job. And you haven't had an instruction for that piece of work, because there is some culpability on the subcontractor here for asking for the instruction at the right time. Now, one of the easiest ways to deal with that is if you complete a subcontractors report and you submit that to the contractor at various points in the job, then within that report you state the Provisional Sums are as follows and we are awaiting your instruction for them. Or as you submit your valuation for each month, you write a simple reminder that you are yet to receive an instruction for Provisional Sum, blah blah blah. And by doing either of those two things, you can never fall foul of having not asked for an instruction. What you shouldn't do is just start wading in and completing any Provisional Sum work without an instruction, and what the instruction should be doing is confirming the omission of the provisional sum from your subcontract sum, and then adding back the relevant work items that make up that work.
Jacob Austin (00:19:32) - Now they can be priced similar to any other variation in a few different ways, and if you want a detailed rundown of that, then episode 18 of the podcast on Valuing Changes runs you through in detail the hierarchy of pricing for variations, and this follows in exactly the same form. And remembering back to that episode, if you're working on an undefined Provisional Sum, and more than likely you are, then the simplest thing for you to do is to price your prelim elements into the change so that they can be accepted alongside the work cost. As with all of these things, you will be expected to demonstrate why you're entitled to the periods that you say you are. So be prepared, at least for a discussion on that. But assuming you're able to have a sensible chat and justify your point of view, then it's as simple as that. You've done it, you've administered a Provisional Sum
So hopefully that's opened your eyes to some of the tricks and stunts that you might see around Provisional Sums and what you can do to protect yourself from them.
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Thanks again! I've been Jacob Austin and you've been awesome!
