Provisional sums Page 1 of 2

Provisional sums

Date 2 August 2006

Judgment Midland Expressway v Carillion Construction & Others, CA 15

June 2006

The Issue The administration of provisional sums within a construction

contract.

Implication Even where a contract fails correctly to set out the rules for
expenditure of a provisional sum, it will nevertheless be generally print
understood that the provisional sum is to be omitted in computing
the final account and an appropriate valuation of the work actually
carried out substituted for it.

The term ‘provisional sum’ is generally well understood in the construction industry. It is used in construction
contracts to refer either to work which may or may not be carried out at all, or to work whose content is
undefined. In either case, the parties will not attempt to price it accurately when they enter into their
contract. Instead, the provisional sum is usually included within the contract price as an approximate guess.
The contract normally provides expressly how it is to be dealt with. A common clause provides for the
provisional sum to be omitted and an appropriate valuation of the work actually carried out substituted for it.

In this broad sense, the meaning of the term ‘provisional sum’ is generally understood by everyone, but its
precise meaning and effect depends on the terms of the individual contract. Indeed, the unamended
standard forms are generally quite reliable in explaining the manner in which the expenditure of any
provisional sums is to be handled. The JCT standard form of contract with quantities for example, goes to
some length to explain that provisional sums should be classified into “defined” and “undefined” work by
reference to the rules contained within the standard method of measurement. If applied correctly, this will
avoid the common argument concerning whether a contractor is entitled to an extension of time and indirect
costs for carrying out work instructed against a provisional sum. If the provisional sum is for defined work,
there will be no entitlement to such claims. The contractor is deemed to have made appropriate allowances
elsewhere in its tender.

Problems arise however when bespoke or amended contract forms are used. To what extent can the parties
rely upon this industry understanding of the operation of provisional sums if the contract terms fail to confirm
the accepted orthodoxy?

In two cases, the courts have been quite liberal in holding that a provisional sum is to be treated in the
accepted manner, despite that the contract confused or contradicted this approach.

In St Modwen Developments v Bowmer & Kirkland in 1996, the employer had used a provisional sum as a
vehicle for the nomination of a subcontractor with the intention of avoiding responsibility for the performance
of the subcontractor. This approach had become quite commonplace in the industry at that time. The
tendering contractor had been invited to price his preliminaries costs on the intended subcontract works and
in an effort to win the job, had priced this as “included”. The argument which then ensued was quite
predictable. The employer said that the contractor’s preliminary costs were included elsewhere in the tender
price and therefore, in adjusting the provisional sum, the employer should pay only the subcontractor prices
and nothing else. The contractor, on the other hand, argued that the word ‘included’ meant “included in the
provisional sum”. In expending the provisional sum it should be paid the costs of the subcontractor, together
with the main contractor’s reasonable additional costs.

Despite that the contract was not being used in its intended manner, the court agreed with the contractor.
The provisional sum was to be omitted and the subcontract work was to be valued as a variation according to
the normal valuation rules. This included an entitlement to claim the reasonable additional preliminary costs
attached to the employment of the subcontractor. If the work was to be regarded as provisional and

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therefore unquantifiable at the date of the contract, so too were the main contractor’s preliminary costs in
relation to carrying out that work.

In the recent case of Midland Expressway v Carillion Construction & Others, a quite different problem in
relation to provisional sums arose. The contract was for the construction of the M6 toll road. Clause 36.3.1
said “the employer shall be entitled to instruct the contractor to expend or execute in whole or in part any
work in respect of which a provisional sum is stated in the pricing schedule. If the employer issues such an
instruction, such expenditure shall be added to the contract price on the basis referred to in (the valuation of
variation clause).

Carillion spotted that though it should be paid for work instructed against the provisional sums, nowhere in
this clause was there a requirement to deduct the provisional sum itself. It therefore claimed an entitlement
to be paid for the work it carried out and, in addition, to be paid the entirety of the provisional sums entered
into the contract.

Counsel for Carillion accepted that this interpretation had a “surprising feel”. Lord Justice May, in the Court
of Appeal, commented that this was an “elegant understatement”. In his view, the very use of the word
“provisional” indicated that the parties did not expect that sum to be paid without adjustment. Carillion’s
interpretation offended that expectation. Lord Justice May noted that, although it would have been more
elegant and saved a lot of lawyer’s fees if the contract had provided for the provisional sums to be omitted
and the actual expenditure paid instead, provisional sums were by definition in this contract only payable at
all if and to the extent the employer so instructed.

- Geoff Brewer
CJ-0630

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