Overhead Costs

For  the contractor, overhead costs fall into two major categories: direct overhead costs, generated by administrative items arising out of the work of a particular construction contract, and indirect overhead costs, generated by administrative items arising out of the act of being in business as a contractor. 

Direct Overhead Costs 

They generally include the cost of such things as temporary services, site offices, hoarding and barricades, permits, fees, salaries of supervisors, and so on. They are priced first by making a list of contract requirements and then making inquiries to determine prices for various items. Some of these items, such as fences and services, can be measured and priced like any other construction work. Other items, such as the costs of field offices, may require quotations from suppliers or rental agencies. There are several items, such as fist-aid costs and survey or layout costs, for which an allowance or percentage must be determined by each individual contracting firm, relative to its own requirements and standards. The costs of supervision can be determined by establishing the superintendent's  salary on a monthly basis and then multiplying that salary by the estimated months it will take to complete the project. 

Indirect Overhead Costs 

These costs reflect the general cost to the contractor of simply being in business as an enterprise. They include such things as rent, light, phone, insurance, salaries, fringe benefits for head-office personnel, publicity, legal fees, taxes, and all other activities and expenses that it takes to run a successful company. These costs are usually determined on an annual basis by the company accountant and are expressed as a percentage of gross annual rupee volume of the company business. The value of each project can then be expressed in proportion to that annual figure, and the appropriate percentage of the annual overhead costs can thus be allocated to each project to cover the total expenses for the year.

Profit

Profit is the residue left to the contractor after all costs hive been met and should generally equate to about 20% to 25% of risk capital, before taxes, where risk capital is defined as amount of money required to operate the construction company as a business.Further, the topic of profit has been dealt with in sufficient detail in next Section