What Are Overhead Costs in Construction?

February 28, 2024

Overhead costs are expenses that impact a construction company’s operations, but are not directly related to any specific project. These costs include expenses such as building materials, office supplies and temporary utilities. They may also include marketing and advertising fees, insurance premiums and legal costs.

Whether they are direct or indirect, overhead costs can make up a large percentage of any project estimate. For this reason, it is important to consider overhead costs when estimating project costs. The good news is that with accurate cost estimation, driven by overhead consideration, construction companies can better position themselves in the competitive landscape, maximize profits and increase project efficiency.

When determining overhead costs, the most important factor is whether or not an expense is directly involved in on-site work. For example, if you spend an hour in the office instead of working on site, that time is considered overhead because it doesn’t contribute to billable hours for your crew. As such, overhead costs are generally calculated on a per crew hour basis.

The types of indirect expenses that make up overhead can vary between construction companies, but they typically include things such as obtaining licenses and permits, professional services, advertising costs and trade show participation. The type of project you are working on can also affect your indirect overhead, as some projects have unique requirements that require additional resources.

There are many different ways to calculate overhead rates, but the general formula is to add up your indirect costs and divide by your total revenue. This number will then be added to your project estimates as a percentage of the project cost.

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