It is very common for many capital project owners to include provisional sums in their contract agreements which are amounts allocated for specialized work to be carried out by specialized firms, for which the details might or might not be available at the time when the contract went out for tender. Under the FIDIC Conditions of Contract, Sub-Clauses 13.5 defines a “Provisional Sum” as a sum (if any) which is specified in the Contract as a provisional sum, for the execution of any part of the Works or for the supply of Plant, Materials or services.
Usually, an amount will be set by the project owner for each provisional sum item for which there will be a separate provision for the contractor overhead and profit to supervise and coordinate the provisional sum scope of work with the remaining project’s scope of work. The provisional sums can be expended in full or in part upon the Engineer’s instruction to do so. The Engineer Instruction (EI), which can be also called Provisional Sum Directive, will form part of Variation Order for additional works and shall be valued in accordance with sub-clause 13.3 (Variation Procedure); and/or Engineer can issue an instruction to the contractor to purchase the plant, material, and services from a nominated subcontractor, which shall be valued on the actual amount paid plus overhead and profit. The contractor might be required to produce the invoices, quotations in support of the amount.
Using a Project Management Information System (PMIS) solution like PMWeb, provisional sums can be managed, monitored, evaluated and reported on. PMWeb commitment module used to capture the contract agreement details between the project owner and the contractor will be used. The commitment will be set as a unit price contract for which for each provisional sum, there will be two-line items. The first will be to capture the provisional sum amount as given by the project owner for which the unit price will be one “1” and the quantity will be the provisional sum amount. This will result in having the total price for the provisional sum equals to what the project owner has allowed for.
For example, assume that the provisional sum amount for the specified scope of work allowed in the contract was US$ 1,000,000. This will be the first line item. The second line item will be for the Contactor’s allowance for overhead and profit. The total quantity for this allowance item will be also the same provisional sum amount, that is the US$ 1,000,000 but the quantity will be the percentage value for the Contactor’s allowance for overhead and profit, which will be assumed to be 5%. In other words, for the provisional sum of US$ 1,000,000, for the overhead and profit allowance of 5%, then the total allowance price will be calculated as US$ 50,000.
As the project progresses and when there is a need to release the provisional sum to the Contractor, the change management process needs to be implemented. This will start by issuing an Engineer’s Instruction (EI) or Provisional Sum Directive using PMWeb potential change order module. The EI total value will equal to zero as it will show the quantity of the provisional sum and overhead allowance to be released as positive value and the same amounts will be duplicated but in negative value to show the adjustment to the contract agreement.
When the EI is reviewed and approved, a change order or a variation order will be issued to the Contractor using PMWeb Commitment Change Order Module. The change order which will be generated from the EI will have the same values of the approved EI. The change order needs also to be reviewed and approved before it is release to the Contractor and eventually be used to release the payment for approved work in place to the Contractor.
PMWeb Progress Invoices module allows linking the change order issued for the released provisional sum amount to the progress invoice module which will be needed to allow the Contractor to invoice for the completed and approved work in place. The option to summarize the provisional sum change order line items into a single line will eliminate replicating the provisional sum line items in the progress invoice. Instead, the release of the provisional sum will be summarized into a single line with “Zero” value which will also considered as a formalization of the provisional sum release.
The progress invoice will be used by the Contractor to submit his invoice for the approved work in place including those associated with the provisional sum. This will be achieved by adding the quantity for the provisional sum that has been completed and approved to date. Those quantity values for progressed line will automatically calculate the payment due for the period including those due for the released provisional sums as well as other project scope of work items. It should be also noted that for progress invoice output form, the line item added for the release of the provisional sum can be excluded from the form.
Similar to all other business processes managed in PMWeb, the project team can attach all supportive documents to each business process template detailed above. It is highly recommended to add details to each attached document to better explain to the reader what is being attached and viewed. In addition, links to other relevant transactions or records of other business processes managed in PMWeb can be also added.
It is also highly recommended that all those supportive documents, regardless of their type or source, get uploaded and stored on PMWeb document management repository. PMWeb allows creating folders and subfolders to match the physical filing structure used to store hardcopies of those documents. Permission rights can be set to those folders to restrict access to only those users who have access to do so. In addition, PMWeb users can subscribe to each folder so they can be notified when new documents are uploaded or downloaded.
To enforce transparency and accountability in managing the business processes detailed above, a workflow needs to be added to each template to map the submit, review and approve tasks, role or roles assigned to each task, task duration, task type and actions available for task. The workflow can be configured to include the approval authority levels as set in the Delegation of Authority (DoA) document.
When a transaction for any of the business processes detailed above is submitted for review and approval, the workflow tab available on the relevant template will capture the planned review and approve workflow tasks for each transaction as well as the actual history of those review and approval tasks. The captured workflow data will include the actual action data and time, done by who, action taken, comments made and whether team input was requested.
About the Author
Bassam Samman, PMP, PSP, EVP, GPM is a Senior Project Management Consultant with 40-year service record providing project management, project controls services and project management information system to over than 200 projects with a total value in excess of US $100 Billion. Those projects included Commercial, Residential, Education and Healthcare Buildings and Infrastructure, Entertainment, Hospitality and shopping malls, Oil and Gas Plants and Refineries, Telecommunication and Information Technology projects. He is thoroughly experienced in complete project management including project management control systems, computerized project control software, claims analysis/prevention, risk analysis/management (contingency planning), design, supervision, training and business development.
Bassam is a frequent speaker in topics relating to Project Management, Strategic Project Management and Project Management Personal Skills. Over the past 40 years he has lectured at more than 350 events and courses at different locations in the Middle East, North Africa, Europe and South America. He has written more than 500 articles on project management and project management information systems that were featured in international and regional magazines and newspapers. He is a co-founder of the Project Management Institute- Arabian Gulf Chapter (PMI-AGC) and has served on its board of directors for more than 6 years. He is a certified Project Management Professional (PMP) from the Project Management Institute (PMI), a certified Planning and Scheduling Professional (PSP) and Earned Value Professional (EVP) from the Association for the Advancement of Cost Engineering (AACE) and Green Project Management (GPM).
Bassam holds a Masters in Engineering Administration (Construction Management) with Faculty Commendation, George Washington University, Washington, D.C., USA, Bachelor in Civil Engineering – Kuwait University, Kuwait and has attended many executive management programs at Harvard Business School, Boston, USA and London Business School, London, UK.