Differences between provisional sums and cost escalation clauses in construction contracts

Navigating the intricacies of construction contracts demands a nuanced understanding of various provisions aimed at managing uncertainties and mitigating financial risks. Among these provisions, two key concepts often discussed are provisional sums and cost escalation clauses. While both serve essential roles in addressing unforeseen costs within construction projects, they operate distinctly and cater to different aspects of contractual arrangements. In this article, we explain what of these are and their differences.

WHAT IS A PROVISIONAL SUM?

Provisional sums in construction contracts represent estimates of the costs associated with specific work, including the supply of necessary materials, that a builder, despite reasonable inquiries, cannot determine definitively at the time the contract is to be entered into. These sums are employed in situations where the final scope of work has yet to be fully defined, allowing for the commencement of projects even when