Reading a quote, provisional sums and allowances

A fixed-price quote is rarely fixed all the way through. Inside most building quotes sit lines that can move: prime cost sums, provisional sums and allowances. They are legitimate. A builder can't price a tap you haven't chosen, or rot they can't see yet. But they are where a budget moves, and they are the lines to read before the total.

Quote or estimate

Check which one you have first. A quote is a price for the job, binding on both sides once you accept it. If the work takes longer or needs more material than the builder expected, that is theirs to carry, unless the contract allows for it, you agree a variation, or something outside their reasonable control gets in the way. An estimate is a best guess, and the bill can differ. The government checklist builders give you before a contract recommends detailed quotes, not estimates.

The three kinds of number

Prime cost (PC) sum. A set amount the builder has allowed to supply an item you haven't chosen yet: tiles, tapware, light fittings, appliances, a benchtop. It usually covers the item only, with the labour to install it priced elsewhere, unless the quote says otherwise. Choose something dearer and you pay the difference, sometimes with the builder's margin on top. Choose something cheaper and the difference should come off, if the contract says so. Check that it does.

Provisional sum. An estimate for work that can't be fully defined yet, usually labour and materials together: rotten framing found when the cladding comes off, an old switchboard that needs replacing, a drain nobody has located. The builder has made a reasonable guess, and the real cost is charged once the work is done. Consumer NZ warns these are often set too low, so ask whether each one will really cover the work.

Allowance. A looser word. It can mean either of the above, or a lump sum for part of the job the builder hasn't priced in detail. These terms are not always used the same way, so if a line says allowance, ask which it is and how it will be settled, and have the answer written into the contract.

Where the budget moves

Budgets rarely move on the fixed lines. They move in four places.

• PC sums set low. A quote with a modest tile sum looks cheaper than one with a realistic figure, but you will choose the tiles you want either way, and the difference lands on you. Setting the sums yourself in the brief makes every quote carry the same figure.
• Provisional sums for the unknown. Old houses hide things. A sensible provisional sum for rot or old wiring is a sign of an honest quote. A quote with none is pricing the best case.
• Margin on the difference. Some builders add their margin to an overrun on a PC or provisional sum, some don't. Across a kitchen's worth of items it adds up.
• Exclusions. Consent fees, engineer's fees, scaffolding, skip hire, the final clean, the painting. Each is reasonable to exclude. Each is still a cost you will pay.

Variations, payments and retentions

Variations. Any change to the work after you sign is a variation. On a job of $30,000 or more, the contract must say how variations are agreed. If it doesn't, a default clause applies: when your change will affect the price or the finish date, the builder must tell you in writing within 10 working days what work it needs and its effect on price and time, and you agree by countersigning. Whatever your contract says, get each change priced in writing and sign it before the work is done, not when the invoice arrives.

Payments. The contract must set out the number of payments, the amount of each and when each falls due. The government checklist's advice is worth following: think carefully before paying more than the cost of the work done and the materials supplied at that point.

Retentions. Some contracts let the owner hold back part of each payment until defects are put right. The retention rules in the Construction Contracts Act cover commercial contracts, not a contract with a homeowner who lives, or will live, in the house. In a home renovation, a retention is whatever your contract says, so agree it before you sign. Consumer NZ notes that under some builders' guarantees, holding money back can void the guarantee, so check yours first.

What the law gives you after the job

For 12 months from completion, you can notify the builder of defects, and they must put them right within a reasonable time of being told in writing. Beyond that, every residential building contract, written or spoken, carries implied warranties under the Building Act: the work done competently and with reasonable care and skill, to the plans and the consent, with suitable materials, and in line with the law. A contract can't take them away, and claims can be brought for up to 10 years. The Consumer Guarantees Act sits alongside them. On completion, the builder must also give you copies of their insurance policies, the guarantees and warranties on the work, and the maintenance information it needs. Ask for that pack at handover.

Questions to ask before you sign

1. For every PC sum, what exactly does it cover, supply only or supply and install, and which products at that price did you have in mind?
2. If I choose something cheaper, does the difference come off?
3. For every provisional sum, what is it based on, and how will the final figure be measured and shown to me?
4. Is your margin added to overruns on PC and provisional sums, and at what rate?
5. What is excluded, and roughly what should I expect each exclusion to cost?
6. How is a variation raised, priced and approved, and will I sign each one before the work is done?
7. Is GST included in every figure on this page?
8. How long is the quote valid, and what happens to material prices if the start date slips?

A good builder answers these without irritation, and the answers go into the contract. Ask the same questions of every quote and the cheapest total often stops being the cheapest job.

What to do next

Read the sums and exclusions before the total, and get the answers to these questions in writing. Keep the signed quote, the schedule of PC and provisional sums, and every signed variation together and dated. They are the only honest account of what was agreed when the invoices arrive. If you keep your property's record in the Archive, file them beside the invoices they explain, so the question of what was agreed still has an answer years later.