Provisional sums – The difference between Defined and Undefined Provisional Sums. Back to Basics #12
Provisional sums are generally well understood in the construction industry as referring to either work which may or may not be carried out as part of a construction contract, or to work which will be carried out, but which is not sufficiently defined so that it can be readily priced (Midland Expressway Limited v Carillion Construction Limited & Ors [2006] EWCA Civ 936).
Where a Provisional Sum is used, its amount is not final. The contract will set out how it is to be treated.
The Royal Institution of Chartered Surveyors (RICS) has helpfully provided guidance on Provisional Sums. Under the New Rules of Measurement (“NRM”) , the term Provisional Sum means “…a sum of money set aside to carry out work that cannot be described and given in quantified items in accordance with the tabulated rules of measurement”.
The NRM states that a Defined Provisional Sum is “…a sum provided for work which is not completely designed [but where the information given should include]…the nature and construction of the work,… how and where the work is fixed to the building and any other work…quantification of the work, and…any specific limitations and the like“ (paraphrased).
An Undefined Provisional Sum, on the other hand, is simply one for work which is “… not completely designed, but for which the information required for a defined provisional sum cannot be provided”.
A key difference between Defined and Undefined Provisional Sums is how the contractor should allow for the work in its Programme.
Defined Provisional Sums should include an allowance in it for the works, whereas an Undefined Provisional Sum does not need to be incorporated into the Programme.
Therefore the Expenditure of a Defined Provisional Sum under a JCT will not, (or at least may not), give rise to an Extension of Time (certainly not for all the time expended on the Works). Expending an Undefined Provisional Sum will give rise to an Extension of Time
Whilst the RICS NRM publication provides guidance on Provisional Sums, it is important that the contract in use expressly refers to the NRM so that there is clarity between the parties as to what the terms mean, unless they are sufficiently defined in the contract itself.
For example, we often see NEC contracts include Provisional Sums in the pricing document. In its standard drafting, there is no mechanism for loss/expense or an extension of time. If the refinement of the Provisional Sum scope is instructed as a change to the Works Information then a compensation event may arise. But, there may exist a conflict, however, between the treatment of the Provisional Sum and the compensation event mechanism. The starting point in the Contractor’s eyes might be the Provisional Sum stated and programme allowance, whereas the Project Manager’s may be the forecast Defined Cost of the work not yet done and a different programme duration.
For this reason, it is important to know exactly how the use of Provisional Sums will interact with other contractual terms.
Ramskill Martin can carry out contract reviews for whole contracts or limited parts of them, including for Provisional Sums, and can advise you of how any mechanism will operate or whether additional drafting or amendments are required.
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