Provisional sums, defined and undefined

A provisional sum is an allowance in the contract sum for work that is not fully defined at tender. It is not a variation, it has its own mechanism, and it comes in two kinds whose difference is routinely overlooked.

The distinction

Under NRM2, and previously under SMM7, a provisional sum is either defined or undefined, and the classification depends on how much information the bill provides.

A sum is defined where the bill states, so far as is possible, the nature and construction of the work, how and where it is fixed to the building, the quantities showing scope and extent, and any limitations on method, sequence or timing.

Where that information is not given, the sum is undefined.

Why the classification matters

With a defined provisional sum, the contractor is treated as having made allowance in its programme and its preliminaries for the work described. If expenditure turns out broadly as described, there is no additional time or preliminaries entitlement arising from the fact that a provisional sum was used.

With an undefined sum, no such allowance is deemed. The contractor could not have planned for what it was not told about.

Where this goes wrong at tender

Three patterns, all common:

Everything marked defined, nothing described. A bill with "Provisional sum (defined) for drainage alterations, £15,000" and no further information. The word has been used as a risk transfer device and it does not work as one.

Provisional sums used instead of design. Where a substantial part of the works is left to a provisional sum, the employer has not saved risk, it has deferred it, and it will meet it again at expenditure with less leverage.

Sums carried forward from a previous project's bill, with descriptions that do not match this job. This is where the classification and the description most often diverge.

Expenditure

A provisional sum is expended by instruction. The work instructed is then valued under the valuation rules, in the same way as a variation, and the allowance is omitted from the contract sum.

So the adjustment at final account is two-sided: the provisional sum comes out, the valued work goes in, and the difference is the net effect. Recording only the net figure is the mistake that makes final account reconciliation impossible, because the omission and the addition are no longer separately visible.

Provisional sums are not contingency

They are frequently used as one, and it is worth resisting.

A provisional sum is an allowance for identified work whose extent is uncertain. A contingency is an allowance for the unknown generally. Using provisional sums as a contingency means the employer's risk allowance sits inside the contract sum, visible to the contractor, and available to be spent by instruction.

Where the intention is a contingency, it belongs in the employer's budget as a risk allowance, not in the bill. That way the money is available and is not presumed spent.

What to do on a live job

• List every provisional sum with its classification and the description given at tender
• Where a sum is described as defined but the information is thin, identify it early rather than at expenditure
• Record expenditure against the specific sum, keeping the omission and the addition separate
• Check at each valuation which sums remain unexpended, because unexpended sums inflate the anticipated final cost if they are treated as committed
• At final account, reconcile every sum: allowance out, valued work in, net effect stated

Done that way a bill with twenty provisional sums closes cleanly. Done by netting, it produces a final account that is a few thousand pounds out and nobody can say where.