A provisional sum is a placeholder figure included in a building contract when the scope or specification of a particular work item is not defined well enough to price accurately. Under the New Zealand standard contract forms referenced in NZBC documentation and commonly used in residential builds, provisional sums are clearly distinguished from fixed prices. When the work is tendered or purchased, the provisional sum closes out and the contract price adjusts to reflect the actual cost. That adjustment can go up or down.

When do provisional sums appear in a contract?

Provisional sums appear most often for items where the specification is not resolved at the time of pricing. Common examples include kitchen joinery where cabinetry design is still in progress, stone or tile selections not yet made, landscaping where design has not started, electrical fit-out above a basic allowance, bathroom fixtures and fittings, and any subcontractor trade that depends on design decisions not yet finalised.

They also appear for work where site conditions are unknown. Foundation work on a site that has not had a geotechnical investigation will often carry a provisional sum for any remedial ground work. Services connections to Watercare or Vector infrastructure can carry provisional sums because the extent of work depends on what the on-site investigation reveals.

A provisional sum is not a sign of a lazy or evasive builder. Sometimes it reflects the genuine state of design at the time a contract needs to be signed. The problem arises when provisional sums are used as a competitive tool to make a quote look cheaper than it is, or when they are set at an allowance the builder knows is likely to be exceeded.

How do you read provisional sums in a quote?

Add up every provisional sum in the contract. Then express that total as a percentage of the overall contract value. If 20 percent or more of the contract value sits in provisional sums, that contract price is not a reliable cost estimate. It is a floor, not a ceiling.

For each provisional sum, ask the builder what the allowance is based on. Is it based on a preliminary quote from a subcontractor? An industry average? Or is it a round number put in to get the contract signed? A builder who cannot explain the basis of their provisional sums has not done the estimating work required to give you a meaningful price.

Also ask what the realistic range is on each provisional sum. A kitchen joinery allowance of $35,000 means something very different if the realistic range is $28,000 to $45,000 compared to $55,000 to $90,000. That conversation should happen before you sign, not after you have selected your cabinetmaker.

What happens when a provisional sum closes out?

When the actual cost of a provisional sum item is confirmed, the builder issues a variation. The variation replaces the provisional sum with the actual cost and adjusts the contract price accordingly. If the actual cost is lower than the provisional sum, the contract price reduces. If it is higher, the contract price increases.

This is normal contract administration under standard NZ residential build contracts. The variation documentation should show the original provisional sum, the actual cost, and the net adjustment. Keep a running total of all provisional sum close-outs. As each one settles, your forecast final cost becomes more reliable.

Problems arise when clients treat the contract price as fixed because it is written in the contract, without accounting for the provisional sums embedded in it. A client who has budgeted to the contract price and has no contingency will face genuine financial stress when provisional sums close out above allowance.

How much contingency should you hold against provisional sums?

The general guidance is to hold ten to fifteen percent contingency against the total value of provisional sums in your contract. If your contract has $80,000 in provisional sums, hold $8,000 to $12,000 in contingency against that figure alone. That is separate from any project-level contingency.

On projects where the specification is genuinely unresolved at contract signing, provisional sums will collectively close out above their allowances more often than below. That is not because builders underestimate deliberately. It is because clients, when they see the actual products and materials available, generally select items in the upper part of the allowance range rather than the lower part. This is a consistent pattern across residential construction. Planning for it is more useful than being surprised by it.

How can you reduce provisional sum risk before signing?

The most effective approach is to resolve as much specification as possible before signing the contract. Kitchen joinery quotes can be obtained at the design stage. Tile and stone selections can be made before consent is lodged. Bathroom fixture schedules can be completed before the contract is priced. Every provisional sum you convert to a fixed-price subcontractor quote before signing is a source of uncertainty removed from your budget.

Some provisional sums cannot be eliminated this way. Site-condition items, council requirement items, and work that depends on other decisions being made first will remain as provisional sums. But reducing the total from 25 percent of contract value to 10 percent through early specification decisions materially reduces your cost uncertainty.

If you have questions about how provisional sums are handled on our projects, or you want help reading a contract before you sign, contact W O Flatz Construction. We are straightforward about what we know and what we do not know at the time of pricing.