All construction projects consist of direct and indirect costs. Together, these form the total cost of construction and they must be factored into the budget. Direct costs are easier to estimate, while indirect costs can vary widely from project to project. Contractors need to keep an eye on the progress and minimise any delays and mistakes as these will add to the indirect expenses of the building.
There are three main costs of a building project; fixed expenses, time-related costs and quantity-proportional costs. Examples of fixed expenses include the once-off purchase of equipment, machinery, supplies and materials. Time-related costs are those that accumulate over a period of time, such as salaries, wages and rent. Quantity-proportional expenses depend on the quantities of materials needed for the project, including cement, aggregate, bricks, steel and glass.
Direct costs of a construction project
These are the expenses that are fixed upon a product, function or facility. In construction projects, the direct expenses include workforce labour, building materials and equipment – so fixed costs and quantity-proportional costs are included in the overall direct expenses of a project.
These costs are developed as estimates before the project starts. Detailed analyses of the construction methods, site conditions, available resources and building contracts are performed in order to accurately estimate the direct expenses. Contractors need to factor in any subcontractor payments and equipment rentals into their direct cost budget.
Indirect costs of a construction project
These are expenses that are not directly fixed – they can vary depending on each project’s requirements and situation. Indirect expenses can include time-related costs due to delays, additional security, administration and extra personnel costs. These expenses do not have a direct connection with the building project and can grow over time. The longer a project takes, the higher the indirect costs can be.
Indirect expenses can also be classified as overheads; whether project overheads or general overheads. Project overheads are those expenses that are related to the actual project but cannot always be directly allocated, such as parking fees, office rentals, workshop facilities and safety costs.
General overheads include supporting expenses such as electricity tariffs, water tariffs, architect fees, directors’ and managers’ salaries and supplier fees. All overheads can be estimated and factored into the budget before a project starts. Most contracting companies make use of checklists and forms to help them develop these estimates. These overheads can account for 5% to 15% of the total project cost.
It is vital that accountants and contractors estimate these direct and indirect expenses as accurately as possible. This will allow the team to set a realistic budget for the construction project and build in some leeway for indirect costs that might creep up. An accurate budget can also help to secure funding from the government or private businesses.
LafargeHolcim is a leading building materials and solutions company that has been operating in international markets for decades. We produce cement and aggregates for construction projects, ranging from small affordable housing developments to large-scale infrastructure projects such as high-rise buildings, dams and bridges.
LafargeHolcim Tanzania has been supplying the country and neighbouring countries with our world-class Tembo cement brand for over 30 years. Our head office and fully-integrated plant are located in Mbeya, Southwest Tanzania.
At LafargeHolcim Tanzania, we believe customers come first. We listen to your specific requirements to supply and develop the best solutions for your needs. As the new leader in building materials, you can also rely on our cutting-edge research and development capabilities that have resulted in the finest materials for your construction projects, whether large or small.