Types of Construction Project Costs – Direct and Indirect Costs
Reading time: 1 minute
Any construction project consists of direct and indirect costs which forms the total costs and expenses resulting from the use of principal components for implementing construction projects.
Different classification of construction project costs and their features are explained below.
Before moving into the main classification of project costs, some of the specific costs encountered in construction projects are explained below.
1. Fixed Cost
This is defined as the cost spent once for a particular point of time. The purchase of equipment, machinery etc comes under fixed cost assets.
2. Time-Related Cost
Time-related cost is the cost spend for a particular activity for a given duration. The cost spent on wages, equipment and building rents etc comes under this category.
3. Quantity -Proportional Cost
This type of cost will vary based on the quantities. Materials costs are examples of quantity-proportional costs.
Major classification of construction projects costs are:
Project direct costs
Project Indirect Costs
Total Project Cost = Project Direct Costs + Project Indirect Costs
Direct Costs of Construction Project
The costs and expenses that are accountable directly on a facility, function or product are called as direct costs. In construction projects, the direct costs are the cost incurred on labor, material, equipment etc.
These costs for a construction project are developed as estimates by means of detailed analysis of the contract activities, construction method, the site conditions, and resources.
Different direct costs in construction projects are material costs, labor costs, subcontractor costs, and equipment costs.
Indirect Costs of Construction Project
The costs, unlike direct costs, is not directly accountable for a particular facility, product or function. Indirect costs can be either variable or fixed.
The main sections coming under indirect costs are personnel costs, security costs, and administration costs. These costs do not have a direct connection with the construction project.
The indirect cost can be classified as:
1. Project Overhead Costs
In a construction project, the cost of some of the items cannot be directly allocated for a specific activity. Most of the site related costs come under this section and are categorized as project overhead costs.
Project overhead costs can either be fixed or time-related costs. Different costs coming under overhead costs are the costs of stores, safety facilities, workshops, offices, staffs and parking facilities. All those plants that are required to support the working crews will come under this cost.
The overhead cost is estimated by a detailed analysis of the site-related activities and their cost. Hence an accurate cost estimate is obtained. Most of the companies make use of forms and checklist developed by them to estimate these costs. The site overhead costs account for 5 to 15% of the total project costs.
2. General Overhead Costs
The general overhead costs cannot be directly charged for a specific project. These form the costs that are used to support the overall activities of the company. The general overhead costs will include the cost of the design engineers, expenses of head-office, cost of directors and managers, schedulers etc.
The general overhead expense and cost are found reasonable through continuous monitoring of the company expenses. The general overhead costs account for 2 to 5 % of the contract direct costs.
The amount of the general overhead that should be allocated to a specific project equals: