Provisional sums and prime costs are not terms of art. Provisional sums and prime costs are not concepts codified in the law. There is danger that one party's understanding of how to apply them may differ from the other. The solution is to define them and set out in the contract how to apply or omit them.

If an expression in a contact is not clear, a court or tribunal will look to the intention of the parties in the context of what is customary in the construction industry and contracts of this nature. As a result, being prepared to accept the most common understanding of provisional sums and prime costs is best (or at least the most defensible) approach.

A prime cost or prime cost sum is an amount included in the contract sum as an estimate of the net cost of certain works or materials. The contractor should only charge to the employer the actual cost it incurs for these works or materials. If the actual cost is more or less than the estimate, the contract price will be adjusted to reflect that. The actual cost to the contractor usually being recognised as the direct costs (labour, plant, materials, sub-contractors). A prime cost need not be limited to work to be carried out by nominated or special sub-contractor.

Distinct from a prime cost sum which is defined work but an undetermined price, a provisional sum is generally understood to be work which is provisional in nature. Work which may or may not be required at all. Alternatively, work which is so undefined is it not desirable to attempt to price it accurately. Ordinarily, the contractor is not to carry out the works subject to the provisional sum until and unless he receives an instruction from the employer. A round sum is included in the contract price but the parties do not envisage that this is the sum that will be paid.

Following the broad understanding set out above, the prime cost item, would be subject to variation or omission to the extent the contract or law may provide. A provisional sum whilst included in the original contract price, is a sum for works which are either instructed or they are not. The works subject to the provisional sum therefore need not be omitted, instead they are merely "not instructed".

However, if the employer intends to not instruct the provisional sum and intends to give the work to another contractor, unless there is specific provision in the contract allowing the employer to do (or the contractors agrees), the employer will be in breach of contract.