Why Your Building Project Costs More Than The Quoted Price
Don’t think that the price for the building work in the builder's quote or contract is the final price that you’ll pay the contractor when your building project is complete. Inevitably there will be some changes and variations as your building project progresses, which we discuss in a future article. As we also discussed last week in our article Do not get caught out with this building pricing trick building contractors often include a cost allowance or provisional item for items such as ceramic tiles, floor finishes, light fittings, door handles and locks, and bathroom taps and fittings. If you select an item more expensive than the builder specified in their quote then you will pay extra for the difference between the actual cost of the item you selected and the amount specified in the contractor's quoted price in the contract.
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Provisional Sums and Allowances and Their Impact On The Final Building Cost
In addition, often contractors include provisional sums and prime cost items in their price. Provisional sums are an estimate of the final cost, while prime cost is an allowance for a particular item or task.
The provisional sums cover the cost of items which the contractor can’t price fully now because they don't have all the information. This might be because you the client must for instance still decide on kitchen layouts and cabinetry design, or it could be because the design is incomplete, or perhaps there are unknown conditions like possibly what the foundation requirements will be.
Unfortunately, some contractors also use provisional sums as a means to make their price appear low and attractive, then after the contract is signed they hit clients with additional costs (sometimes with excessively high mark-ups). So they deliberately put in their quote low provisional sums for items, knowing that inevitably the amount required will be more. So the total of their quoted price appears cheap, because it includes these low priced provisional sums, but at the end of the project their cheap price suddenly becomes very expensive when the actual cost of the provisional sums is included.
Sometimes contractors are simply too lazy or too rushed to price some items so they insert a guestimate provisional sum.
Contractors may have provisional sums for some of the following; clearing the project site, foundations for the house (foundations often vary depending on the actual ground conditions encountered), levelling the house site, excavating rock, preparing drawings, landscaping, kitchen cabinetry, built in cupboards, air-conditioning and items that haven’t been designed yet.
A provisional sum or allowance is basically a guestimate of what the item will cost. The final cost is only known when the contractor submits a price for that item – usually after the work is complete, but always only after they have sufficient information to price the item. Sometimes contractors only invoice the extra amount when the project is complete, by then it is usually too late to argue the cost.
For example: if the contract price for building a new house is $150,000 and this includes a provisional sum of $2,000 for clearing the site and then the actual price for clearing is $3,000, then you’ll pay the contractor $150,000 plus $1,000 (being the difference between $3,000 and $2,000) meaning the house will now cost $151,000. Of course if the cost of clearing the site is only $1,5000, then your house will cost $500 less (the difference between $1,500 and $2,000) in other words $149,500.
Problems With Provisional Sum Allowances in Building Quotes
The problems with provisional sums are that:
Avoiding Unpleasant Surprises With Your Final Building Cost
You can protect yourself by:
Know What You Are Paying For
It's always important to carefully check your contractor's price. Understand what they have priced. Know where you could end up paying more. Monitor construction and be aware of how your choices and decisions could alter the final cost of your building project.
If in doubt get professional advice.
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Other Useful Articles:
Checking Your Contractor's Price (Quotation)
What’s included in your builder's price (or excluded)
14 Questions to ask your building contractor's clients
This is an extract from the author's book 'An Introduction to Building and Renovating Houses: Volume 1 Hiring Contractors, Managing Construction and Finishing Your Home'.
© 2021 This article is not to be reproduced for commercial purposes without written permission from the author.
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Paul Netscher has written 2 easy to read books 'An Introduction to Building and Renovating Houses - Volumes 1 and 2'. An Introduction to Building and Renovating Houses Volume 1 deals with Hiring Contractors, Managing Construction and Finishing Your Home. and Designing your ideal home Volume 2 deals with Finding Your Ideal Property and Designing Your Dream Home.
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