A guide to understanding preliminaries in construction contracts

In any construction project, the focus often falls on the visible outputs: the steel, the bricks, the finishes. But behind the scenes, a critical part of the build is quietly powering every stage: the preliminaries. Often misunderstood or dismissed as background costs, preliminaries are in fact a core part of every construction contract. They can dramatically affect cost certainty, programme viability, and even dispute risk. Whether you’re a developer, investor, funder or tenant commissioning a fit-out, understanding preliminaries is essential for commercial success.

What are preliminaries?

Preliminaries (or “prelims”) are the contractor’s project-wide costs for setting up, managing, and running the site. They are distinct from the costs of building works themselves, but no construction project can proceed without them.

Preliminaries typically include the costs of establishing the site boundaries and protections (such as fencing, signage and hoardings), maintaining welfare facilities for workers (like canteens and toilets), ensuring supervisory presence and health and safety management, and complying with all necessary statutory and insurance obligations.

They also cover all the infrastructure needed to make the site operational: power, water, lighting, waste management, IT and comms. For urban or occupied sites, traffic and pedestrian management will often fall within preliminaries too. In phased projects, prelims may need to rise, fall and recur, increasing their value substantially over time.

Crucially, these costs are not tied to particular construction activities – they underpin the entire programme. This makes them central to the risk and cost profile of a project.
In financial terms, preliminaries can amount to 10% to 20% of total construction costs. But their real commercial significance lies in how they behave under pressure, particularly when the programme slips.

Where do preliminaries sit in a construction contract?

In most contracts, preliminaries are found in a dedicated section of the contractor’s pricing documents. Under JCT Design and Build (D&B), they may appear in the Contract Sum Analysis, Schedule of Rates, or even as a separate appendix if supplied post-tender. Under NEC, they form part of the Activity Schedule or Pricing Data.

It’s important to distinguish between:

• Contractor’s Preliminaries: Costs the contractor takes on and prices
• Employer’s Requirements Preliminaries: Obligations imposed by the client, which may or may not be costed separately

The contract should also distinguish between:

• Fixed prelims: A lump sum covering set-up and demobilisation
• Time-related prelims: Recurring weekly/monthly charges linked to programme duration

We also advise clients to ensure that preliminaries are not confused with overheads or contingencies, nor blended with provisional sums, which serve a different contractual purpose.

In forward funding agreements or where a funder steps in after a Pre-Construction Services Agreement (PCSA), it’s essential that the treatment of preliminaries is harmonised between early and main-stage documentation to avoid double-counting or scope mismatch.

Why preliminaries matter commercially

While often filed under ‘admin costs’, preliminaries are a central lever in commercial construction strategy. Their scope and structure affect pricing risk, cash flow, dispute exposure, and the power dynamics in delay or renegotiation scenarios.

A few critical reasons to treat preliminaries seriously:

• Cash flow manipulation: Some contractors front-load prelims to gain early-stage liquidity. Without staged release provisions, this can distort performance monitoring.
• Delay disputes: If prelims are time-related, any programme extension—justified or not—may lead to claims for additional prelims. Without careful drafting, the employer can be left vulnerable.
• Valuation pressure: Contractors may seek payment of 100% of preliminaries before site completion, leaving little leverage to encourage completion discipline.
• Funding and audit: Funders often withhold drawdown until prelims are substantiated. Unclear prelim breakdowns can delay funding and damage lender confidence.

To illustrate how these risks might unfold in practice, consider the following hypothetical scenarios:

In the first example, consider a contractor working on a retail development in central London which includes £225,000 in time-related preliminaries for night security. However, the employer intends to provide its own CCTV and access control. If this is not identified before contract close, the employer could end up duplicating costs, funding both their own security infrastructure and the contractor’s assumed provision.

Another example might involve a phased office redevelopment. Here, the contractor submits a claim for extended preliminaries following a delay in obtaining planning consent. Because the preliminaries were not broken down by project phase, the employer lacks the contractual tools to challenge how costs have been allocated across the delay. Had the contract required sectional breakdowns, the employer might have ringfenced their liability and avoided an uplift of tens of thousands of pounds.

Managing and negotiating preliminaries effectively

Understanding how preliminaries are structured can give you a real advantage when negotiating or reviewing a construction contract.

Begin by demanding a fully itemised prelims breakdown from the contractor. This enables the employer to scrutinise the assumptions behind each allowance. If the employer is supplying temporary power or welfare facilities, those should be deducted explicitly from the prelims section. Avoid accepting round-number allowances, insist on substantiated costings linked to actual site requirements.

High-risk items like security, traffic management, or site supervision should be capped or made time-limited. Align prelim claims with the project’s delay mechanisms so that any extensions trigger revaluation only where properly evidenced. Staging the release of prelims through the contract programme can also mitigate the risk of front-loaded claims and preserve leverage.

Where a Pre-Construction Services Agreement (PCSA) precedes the main contract, watch for duplication of prelims across the two stages, particularly if the same contractor is used. Establish continuity terms to clarify what has already been delivered and paid for.

Monitoring preliminaries during the project

A well-negotiated preliminaries section means little if not managed in practice. Employers, funders and contract administrators should adopt active monitoring protocols.

During interim valuations, review whether preliminaries are being claimed appropriately against actual progress and time elapsed. Match site resources to what is claimed, does the number of personnel or temporary infrastructure align with the contractor’s monthly application?

Site inspections can validate the ongoing use of facilities. Cost reporting tools such as monthly Cost Value Reconciliations (CVRs) provide a helpful overview of how preliminaries are trending relative to budget.

When changes arise (eg, variations, programme shifts, or scope amendments) insist on contemporaneous assessment of how they affect prelims. Delay events must be captured formally with records and notices to avoid inflated retrospective claims.

What happens if preliminaries are not properly scoped?

When preliminaries are unclear or left unchecked, the fallout can be commercially and legally significant.

Contractors may seek to bolster their final account by adding retrospective top-ups to prelims—particularly where the original pricing lacked specificity. Payment delays are also common, as funders withhold drawdowns pending clarity or substantiation.

Unclear prelims can lead to duplicated costs—especially where an employer or tenant is already providing services such as power or internet. A mismatch between prelims and programme phases can create unrecoverable cost gaps. And in adjudication or mediation, vague prelims weaken the employer’s position when resisting claims.

These risks are avoidable through clear drafting, proper breakdowns, and alignment with contract obligations and delivery realities.

Legal risks

Preliminaries are often implicated in disputes involving delay, disruption, and performance failure. Understanding how they behave under pressure is essential.

In many contracts, contractors will assert that every week of delay increases time-related prelims proportionally. Unless the contract requires substantiation and links extension of time with valuation rights, this can result in inflated claims.

Disruption claims, too, may use preliminaries as a cost base for reduced efficiency, even when those costs are not directly affected. And where liquidated damages are capped or insufficient, some contractors attempt to recover lost value through increased prelims rather than through formal dispute resolution.

To mitigate these risks:

• Link preliminaries to specific durations and sections
• Require notification of any claim for extended prelims within contractual timeframes
• Establish that time-related prelims require actual incurrence and evidence—not just assumed calculation

Conclusion

Handled properly, preliminaries offer transparency and accountability. Mismanaged, they become a source of hidden exposure.
At Newmanor Law, we help clients negotiate and control preliminaries as part of a wider commercial and legal strategy. If you’re reviewing a contract, entering a D&B arrangement, or preparing for a major development, we’re here to ensure your prelims are working for, not against you.