Your contract and provisional sum items – what did the court say

A recent decision of the ACT Court of Appeal in M Johnson Building Pty Ltd v O’Toole [2026] ACTCA 8 provides an important reminder for residential builders about the risks of informal or inconsistent contract drafting—particularly when dealing with provisional sums and prime cost items.

While the case primarily addressed the rule against double recovery, the Court’s observations at paragraph 45 carry significant practical implications for how builders document cost uncertainties in their contracts.

What the Court said

In paragraph 45, the Court made it clear that where items described as “allowances” in a builder’s quote are not properly recorded in the contract’s provisional sum (PS) or prime cost (PC) schedules, this can be fatal to a builder’s attempt to recover cost overruns from the owner.

In other words, simply labelling something as an “allowance” in a quote is not enough. If the contract itself requires provisional sums or PC items to be set out in designated schedules, failing to do so may prevent the builder from passing on additional costs—even where those costs were genuinely incurred.

This decision highlights a problem we continue to see across the residential building sector:

• Builders frequently include the term “allowance” in quotes instead of using the contractual terminology of “provisional sum” or “prime cost item.”
• The formal PS/PC schedules in the contract are often:
  • left blank,
  • incomplete, or
  • populated with vague references such as “see quote.”

This creates a disconnect between the contract and the quote, which courts often interpret in favour of the client.

Why this matters

Contracts are interpreted based on their express terms, not assumptions about what the parties intended.

Where the contract refers to provisional sums or prime cost items, but the quote uses a different term like allowance, there is a real risk that a court will find that:

• no valid provisional sum or PC item was created; and
• the builder has no contractual entitlement to recover any excess over the stated amount.

Key takeaway for members:

To avoid the outcome seen in this case, we strongly recommend:

1. Use the Correct Terminology

• Always use “provisional sum” or “prime cost item” where that is what is intended.
• Avoid relying on informal terms like “allowance” unless they are clearly defined and aligned with the contract.

2. Complete the PS/PC Schedules Properly

• Do not leave schedules blank or incomplete.
• Ensure every relevant item is clearly listed with:
  • a description, and
  • an amount.

3. Ensure Consistency Between Documents

• The contract, schedules, and quote must all use consistent language.
• Avoid cross-referencing like “see quote” unless the contract expressly allows it and the terminology aligns.

This case is a timely example of how seemingly minor drafting practices can have major financial consequences. Properly completing provisional sum and prime cost schedules and using the correct contractual language is not just administrative detail it is essential risk management, especially in the current financial climate.

Should you require assistance with your contract,  please contact the Workplace Relations Team:

📞 (02) 6175 5900
📧 workplace@mba.org.au