Construction Law/Provisional Cost


Dear Sir,

In one of our Contract which is based on FIDIC MDB 2010 Conditions of Contract, an item ‘provisions of performance security/ guarantee’ has been included as a prime cost item (provisional sum). The following provision is contained in preamble of the Bill of Quantities;

“For items shown as ‘Prime Cost’ the Contractor shall provide evidence of the exact amount of the direst cost paid for the item by the Contractor and that the item has been procured at a competitive market price. This amount shall be paid by the Employer. The provisional Sum shown fir these items is indicative only”

We (The Contractor) have provided performance security to the Employer covering the period upto the end of Defect Notification Period. We have incurred cost for arranging performance security more than the prices stated in the BoQ.

My questions are as follows;

(i)   Are we entitled to recover actual cost in arranging performance security as this cost is priced at the risk of the Employer?
(ii)   Is it possible that provisional sum exceed the cost provided in the Contract and how this exceeded cost can be covered in the Contract price?


Umer Shabbir

Dear Umer,

Thank you for your question.

(i) By all means, items quoted as Provisional Sums are always paid at the real cost, regardless if lower or higher than actual amount included in the BoQ.

Nevertheless, you must demonstrate with invoices/ receipts/ etc, the actual cost you paid and in addition, in your case, you must demonstrate "that the item has been procured at a competitive market price".

(ii) Yes, see above. That is the difference between items quoted with Provisional Sum and items quoted with Lump Sum:

- Provisional Sum: paid at actual cost, based on documents that substantiate incurred cost;

- Lump Sum: paid at rated amount, regardless actual cost (Contractor's risk), but with no proves of incurred cost. Paid solely based on amount included in the Contract.

Trust that answers your question.

Construction Law

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