A basic understanding of the components of a total project budget can help you avoid costly miscalculations and allow you to be responsible stewards of the capital funds required for a successful project. Hard vs. The construction cost is initially an educated estimate, or more an art than a science, of comparable facility square foot costs that is continually refined and tested through the design process phases as increasingly specific information about the project is determined.
A design or owner's contingency amount of 10 percent to 20 percent is also factored into the probable cost estimate of construction as a kind of insurance or risk management tool. Typically the design or owner's contingency is used to address unforeseen conditions or issues like discovering an unstable soils problem after the soil borings have been taken, adding more cost to the project.
It may be used to help balance the project's descriptive scope as more details emerge with the given budget, and occasionally may be used to enhance the project's scope as agreed upon by the owner and the design team. Soft costs include professional design fees for the architects, engineers and specialty consultants such as landscape architects, aquatic design engineers or lighting designers.
The professional services fees may range from 6. Surveying, soils testing, LEED registration, and the printing of specifications and construction documents are considered the owner's responsibility. However, the selection and management of those services are usually coordinated by the architect or engineer, and their fees are reimbursable expenses.
The owner is responsible for direct payments for the building permit, inspection fees and water and sewer taps that collectively may cost hundreds of thousands of dollars. As the design process progresses—from conceptual to schematics, and design development to creation of construction documents—increasingly more qualitative and quantitative information is revealed, resulting in more reliable cost estimates. The design or owner's contingency is gradually reduced to zero by the time the construction documents are complete and ready to be advertised for bidding.
The Contingency Factor s Site development costs often have a critical impact on the hard cost budget and include utilities, grading, parking areas, landscaping, hardscapes, roadways, bridges, traffic control equipment, environmental remediation and occasionally demolition of existing structures.
It's logical to include those components that relate directly to the new or renovated facility such as basic utilities, parking and landscaping. The difficulty arises when unanticipated or predetermined requirements are imposed on the project.
The regulatory body that permits or approves the project may require your project to cover the cost to improve an existing infrastructure condition proximate to your project site. The local engineering authority may require that a traffic study be completed and expect your project to construct a turn lane, add a traffic light or enlarge a stormwater detention basin that serves an area much larger than your site.
If wetlands are known to be on the site or are discovered through investigation, you may be interacting with the U. Army Corps of Engineers for approval permits or remediation. Hazardous materials abatement cost is frequently overlooked when the project is a renovation or addition to an existing structure. A soft cost to a contractor , such as his administration costs, can be a hard cost to the owner because what the contractor invoices the owner is the owner's direct cost.
If the owner employs engineers to overlook construction as the project is executed, this will be a continuing expense during repair if the repair is done after the original completion date and would be reported in the delay in completion values. If the engineer cost was a one time charge for a design, he may need to be consulted in order for the loss to be repaired.
This expense does not occur because of a delay, but is incurred to repair property damage and hence should be included in the construction costs if the intention is for that expense to be covered in the indemnification depending on policy wording. If the project is insured to the extent of the reported values, and that value was left out to compute the premium, the company may decline that cost in the indemnification.
Soft costs differ from hard costs in both labor and materials; they are generally not considered to be exclusively related to physical construction.
Rather, they are commonly perceived to entail non-construction costs such as taxes , marketing expenses, interest payments, and finance charges. This coverage can provide indemnification for these indirect costs that may continue after the original completion date. Other soft costs that can be repeated in the repair of the property should be reported with the property values. A Draw Back expense proforma shows which soft costs are one time charges and which are continuing expenses throughout the project term.
Engineer design fee is a one time charge that can be incurred again in a repair whereas engineer oversight of quality persists through the term and after. Unfortunately, these contractor accounting terms are being used when the owner is insured and many have erroneously equated hard costs with property and soft costs with business interruption which is called Delay in Opening  coverage being added to some builder's risk policies.
With its popularity increasing in recent years, some insurers automatically include soft costs coverage, which can be activated by designating the limit on policy declarations. However, these modifications to builder's risk insurance will not cover the efficiency of business owners or managers.
Jump to navigation Jump to search Soft Cost is a construction industry term but more specifically a contractor accounting term for an expense item that is not considered direct construction cost. Soft costs include architectural, engineering, financing, and legal fees, and other pre- and post-construction expenses. Overview[ edit ] For a contractor, soft costs are essentially construction costs incurred that are not labor and materials. Delay in Start Up insurance coverage and soft costs are not the same. Some soft costs may be incurred in the repair of a covered loss before the anticipated completion date is reached.