What Is the Contract Sum?

A complete contract sum bundles together everything the parties have agreed the price will cover at the point of signing, even though some of it is still an estimate.

• The priced scope of work — whether built up from a lump sum quote, a priced Bill of Quantities, or a schedule of rates.
• Preliminaries — the site-wide costs of running the job.
• Provisional sum allowances — for work not yet fully designed or specified.
• Prime cost (PC) allowances — for products the client hasn’t yet selected.
• The builder’s margin, and GST, depending on whether the contract sum is expressed inclusive or exclusive of tax.

The tender sum is the price a contractor submits in response to a request for tender, before the contract is awarded or signed. The contract sum is what actually ends up written into the executed contract, which can differ from the tender sum where negotiation, clarifications or addenda changed the scope or price between tender close and signing.

On smaller, non-tendered jobs, this distinction usually collapses — the price in an accepted quote effectively becomes the contract sum the moment both parties sign, without a separate tendering step in between.

A contract sum is rarely the final figure paid, because most building contracts include mechanisms that adjust it as the job proceeds — approved variations, reconciliation of provisional sums and prime cost items, and, on longer contracts, rise and fall (escalation) provisions.

Tracking every adjustment against the original contract sum as it happens, rather than trying to reconstruct it at the end, is what keeps the final account defensible and free of disputes.

Progress claims are typically valued as a proportion of the contract sum completed to date, or against the items in a priced Bill of Quantities, less amounts already paid and any retention withheld. Retention itself is usually capped as a percentage of the contract sum, so its dollar value moves in step with any adjustment to that figure.

The final payment at practical completion is reconciled against the adjusted contract sum, not the original figure — which is why every variation and reconciliation needs to be documented and agreed as the job proceeds, rather than argued over at the end.

This is also why an accurate, itemised contract sum at the outset pays off well beyond the day the contract is signed: every later progress claim, retention calculation and final reconciliation traces back to that original figure, so an ambiguous or poorly structured contract sum makes every subsequent payment harder to agree.

The contract sum is negotiated between client and builder, or fixed by the outcome of a competitive tender. Once construction starts, it is administered by the builder directly on smaller jobs, or by a superintendent or quantity surveyor on larger commercial and government contracts, who certifies the variations and reconciliations that adjust it.

Whoever administers it, every adjustment should be documented in writing and agreed by both parties before it is treated as part of the contract sum — verbal agreements are the single biggest source of contract sum disputes.

On a tendered project, the party administering the contract sum also has to be able to explain, item by item, how the original figure was built up — which is precisely why a well-structured, measured Bill of Quantities behind the price is so valuable once the job is under way and adjustments start being assessed.

The contract sum is often confused with a handful of related pricing terms, so it helps to be precise:

• Contract sum vs contract price — the two terms are used interchangeably in most Australian building contracts; “contract price” is sometimes preferred on schedule of rates arrangements where there isn’t a single fixed sum.
• Contract sum vs final sum — the contract sum is the starting, signed figure; the final sum (or adjusted contract sum) is what’s actually paid once every adjustment is applied.
• Contract sum vs estimate — an estimate is an approximate internal costing; the contract sum is the binding figure both parties commit to once the contract is signed.
• Contract sum vs contract value — “contract value” is sometimes used more loosely in reporting and finance to describe the current expected worth of a contract, including likely future adjustments, whereas the contract sum is the precise, defined figure in the contract document itself.

Most contract sum disputes trace back to ambiguity at signing or poor record-keeping afterwards, rather than a genuine disagreement about the price itself.

• Not stating clearly whether the contract sum is GST inclusive or exclusive, leading to a dispute over the true price.
• Treating provisional sum and PC allowances within the contract sum as firm figures, rather than placeholders still to be reconciled.
• Failing to document every adjustment to the contract sum in writing, so the final account can’t be reconstructed at practical completion.
• Confusing the tender sum with the contract sum where negotiation or addenda changed the price between tender and signing.