An “Allowance” is an amount included by Quantity Surveyors and Cost Managers in the contract sum to cover the cost of prescribed items not specified in detail ⚠️
According to the RICS New Rules of Measurement (NRM), there are three types of allowances in Construction Projects: 1) Defined Provisional Sum (PS); 2) Undefined Provisional Sum (PS); and 3) Prime Cost Sum (PC).
1. What is a Defined Provisional Sum (PS)❓
Means a sum provided for work which is not completely designed but for which the following information shall be provided:
a) the nature and construction of the work;
b) a statement of how and where the work is fixed to the building and what other work is to be fixed thereto;
c) a quantity or quantities that indicate the scope and extent of the work; and
d) any specific limitations and the like identified.
2. What is an Undefined Provisional Sum (PS)❓
a) means a sum provided for work that is not completely designed, but for which the information required for a defined provisional sum cannot be provided.
b) Where provisional sums are given for undefined work, the contractor will be deemed not to have made any allowance in programming, planning, and pricing preliminaries (i.e. General Requirements /General Conditions).
c) Undefined provisional sum does not provide price certainty and is not recommended.
3. What is a Prime Cost Sum (PC)❓
a) A sum of money included in a unit rate to be expended on materials or goods from suppliers (e.g. supply-only ceramic wall tiles at $5/sf, supply-only door hardware at $200/door, etc.)
b) It is a supply-only rate for materials or goods where the precise quality and specification of those materials and goods is unknown at the time of contract formation.
c) PC sums allows flexibility in materials selection (i.e. finishes, lighting fixtures, or plumbing fixtures)
d) PC sums EXCLUDE all costs associated with fixing or installation (i.e. labor), all ancillary and sundry materials, and goods required for the fixing or installation of the materials or goods, subcontractor’s design fees, subcontractor’s preliminaries, subcontractor’s overheads and profit, main contractor’s design fees, main contractor’s preliminaries and main contractor’s overheads and profit.
Therefore, Quantity Surveyors and Cost Managers need to carefully evaluate the following questions before proposing allowances to Clients: 👇
1. What type of allowance is being used? Defined Provisional Sum, Undefined Provisional Sum, or Prime Cost?
2. Who bears the risk of any overage/underage? Subcontractor, Construction Manager, or Owner?
3. What authorization is required, and by who, in order to exceed the allowance amounts?
4. How will the overage/underage, based on planned vs actual, be reconciled and paid for? through change orders or contingency?