Proposals · Glossary
What is a prime cost item?
A prime cost item, or PC item, is an allowance in a building quote for supplying an item the client has not yet chosen, such as tapware, an oven or tiles. The allowance covers supply only. When the client picks the actual item, the contract price is adjusted by the difference between its cost and the allowance.
PC items let a client sign a building contract before choosing every fitting. The catch is that a generous showroom visit can add thousands to the final bill, and many clients do not realise it until the adjustment arrives.
Nuwan Madhusanka · Co-founder
4 min read · Published
| Case | Allowance | Actual cost | Adjustment |
|---|---|---|---|
| Selection costs more | $1,100 | $1,320 | Add $220 plus $44 margin, $264 |
| Selection costs the same | $1,100 | $1,100 | No change |
| Selection costs less | $1,100 | $950 | Credit $150 |
| Client removes the item | $1,100 | Supplied by the client | Credit the $1,100 allowance |
How the adjustment works
The allowance for each PC item is part of the contract price. When the client chooses an item, its actual cost is compared with the allowance. The Housing Industry Association explains, for its NSW contract, that if the actual cost exceeds the allowance, the builder can claim the excess plus a margin on that excess, and if it is lower, the difference is credited at the next progress claim. Its contract sets the margin in a schedule, with 20 percent applying if none is stated. The table above follows that pattern with an allowance of $1,100: a $1,320 selection adds $220 plus $44 margin.
Prime cost against provisional sum
The two are often confused. A PC item is about supply of a product the client will choose; the labour to install it is normally already in the contract price. A provisional sum is about work that cannot be priced yet, and it includes labour and materials. Consumer Affairs Victoria defines a prime cost item as a fitting included in the contract where the actual item has not been selected or its price is not known when the contract is signed, and requires the contract to list each item with its allowance.
When a change stops being a PC adjustment
A PC adjustment covers choosing a different version of the same thing. Changing the thing itself is a variation. Swapping an electric cooktop allowance for a gas cooktop that needs gas lines and certification is a variation, because the scope of work changed. Choosing tiles that need a different laying method may be a PC adjustment for the tile price plus a variation for the extra labour. Keeping that distinction clear keeps both the price and the paperwork right.
Common mistakes
Setting allowances below what a typical client will spend is the most common mistake, and it turns a fair quote into a source of complaints. Others include not telling clients when selections are due, so the job stalls, charging margin on the whole actual cost instead of only the excess, and failing to give clients copies of supplier invoices, which Victoria requires builders to provide. Clients, for their part, often forget that the allowance excludes upgrades in installation.
Where it shows up in the product
The pricing table in the proposals module holds each PC allowance as its own line item with a group label such as Allowances, and the terms, written as numbered clauses, can explain the margin on adjustments. Items can also be marked optional, which lets a client tick an upgrade such as a premium tapware package on the proposal page, with totals updating. A later selection is reflected by editing the item, or with the AI chat's add, update or remove item operations, each shown as a preview first.
Questions people ask
Does a prime cost allowance include installation?
Usually not. A PC allowance normally covers supply of the item only, with installation already priced in the contract. If the chosen item needs extra installation work, that extra may be charged as a variation. Check how your contract defines it, because some contracts include delivery in the allowance and others do not.
How do I know if my PC allowances are realistic?
Ask the builder what product each allowance is based on, then price that product and the one you actually want at a supplier. Compare allowances between quotes too; one builder's lower total can simply come from smaller allowances. Realistic allowances make the quote you compare closer to the price you will pay.
Can the builder charge a margin on prime cost items?
Yes, usually on the amount by which a selection exceeds the allowance, at the rate set in the contract. The margin on the original allowance is normally already inside the contract price. A builder charging margin on the full actual cost may be charging it twice, which industry guidance warns against.
What happens if I buy the item myself?
Agree it in writing first as a variation. The allowance is credited back to you, usually without the builder's margin already built into the price. You then carry the responsibility for the item being correct and delivered on time, and the builder may not warrant an item they did not supply.
Should PC items appear on the final invoice?
Yes. The final or progress invoice that includes an adjustment should show each PC item's allowance, the actual cost and the resulting addition or credit, with supplier invoices as evidence where the law or contract requires them. A clear line by line adjustment avoids disputes about what was charged.
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