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Construction Law/Contingency,provional sum and prime cost


Dear Florin,

Kindly clear the confusion I have about the 3 items below:

1) Contingency

2) Provisional sum

3)Prime cost

the differences and usages.

thanks in advance

Dear M.Dzaie,

Thank you for coming back.

You did not specify in which environment, i.e. which Conditions of Contract are you using those terms, but you should generally find the definitions at the beginning of the Conditions, generally under Clause 1.

But, to give you a general answer:

1) Contingency: a percentage, generally 5 - 15% of the value of works, as tendered by the Contractor, put aside from the beginning, as a financial buffer for eventual unexpected problems.

That amount is not placed automatically and unconditionally at the disposal of the Contractor. The money are only spent upon prior approval, based on a clear need/ justification.

If for example some unforeseeable physical conditions are met and a Variation Order is needed, that is where the money will be taken from.

2) Provisional sum: at the time of tendering, Employer includes in the form for the Financial Offer a certain amount against certain items. All Tenderers must keep that amount in their offers.

When works are executed, reimbursement is made against actually incurred costs, based on supporting documents, eventually adding overheads and profit, as the Contract may provide for.

That is opposite to Lump Sum, where supporting documents are not requested and Contractor is paid only that amount, regardless actually incurred costs.

3)Prime cost: I am not 100% sure in your case, but that is also known as "Overheads" and include Contractor's costs for their head office, site office, communications, secretarial support, copying documents, etc.

Please check in your case, as there are also "Preliminaries" or "General Items", which are different and are mainly related to monthly costs on site, such as cars fueling and maintenance, consumables, etc.

Hope that answer your question.

Construction Law

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