Understanding the many expenses involved in a construction project is essential for maintaining an accurate construction budget and ensuring project success. While most people are familiar with hard costs, such as building materials and labor, soft costs are just as crucial—yet often misunderstood.
This guide will answer the question “What are soft costs in a construction project?”, how they differ from hard costs, and why they play a significant role in the construction process.
We’ll also discuss strategies for managing these costs effectively and introduce Zebel, an innovative platform that can streamline cost estimation and management for preconstruction professionals.
Quick Insights
| Topic | Key Points |
| Definition | Soft costs refer to non-physical expenses in a construction project, such as design, permitting, and management fees. |
| Difference from Hard Costs | Unlike hard costs (materials and labor), soft costs are intangible but essential for project planning and execution. |
| Examples of Soft Costs | Architecture fees, legal expenses, inspections, financing fees, and administrative costs. |
| Importance | These costs ensure compliance, quality, and smooth execution of the project, impacting overall success. |
| Management Strategy | Platforms like Zebel can help estimate, track, and optimize soft costs efficiently. |
What Are Construction Soft Costs?
Soft costs, also known as indirect costs or overhead expenses, are the non-physical expenses involved in a construction project. They cover various aspects of project planning and execution, such as design, permits, management fees, and administrative costs.
Soft costs are considered indirect as they do not contribute to the actual structure but rather support its development.
Soft Costs vs. Hard Costs
While soft costs cover indirect, non-physical expenses, hard costs, also known as direct costs, are the tangible expenses involved in constructing a building or infrastructure. They include materials, labor, and equipment directly used in the project. Hard costs are typically fixed and easier to estimate, while soft costs are more variable and difficult to predict.
Both types of costs are essential for a construction project, and understanding their differences is vital for successful budget management.
Examples of Hard Costs
Below are some common examples of hard costs that are integral to any construction project.
- Building materials (e.g., lumber, concrete, steel)
- Labor and construction equipment
- Site preparation and excavation
- Utilities and services (electricity, plumbing)
- Structural elements (e.g., beams, trusses, roofing materials)
- Interior finishes (e.g., flooring, drywall, cabinetry, paint)
- Mechanical systems (e.g., HVAC systems, ventilation, ductwork)
- Landscaping and external features (e.g., fencing, driveways, irrigation systems)
- Specialized construction equipment (e.g., cranes, scaffolding, concrete mixers)
List of Construction Soft Costs
The specific soft costs associated with a project can vary significantly depending on the project’s scope and purpose. For instance, a minor renovation, like updating paint and flooring, is unlikely to involve expenses like design fees or permits.
On the other hand, constructing a new building intended for leasing tenant spaces will typically incur a range of soft costs, including permitting, insurance, marketing, and other developmental expenses.
Below are common examples of soft costs frequently encountered in construction projects:
1. Design and Engineering Fees
These include payments to architects, engineers, and other design professionals. They focus on creating building plans, blueprints, takeoffs and structural assessments.
Example: LEED certifications and feasibility studies often fall under engineering costs.
2. Legal and Administrative Costs
Fees related to contracts and permits are classified as administrative costs. Legal expenses, such as professional liability insurance and project agreements, fall here as well.
Example: Obtaining permits and zoning approvals necessary for the construction process.
3. Insurance Coverage
Insurance costs protect against risks like property damage, workers’ compensation, and liability claims.
Example: General liability insurance ensures stakeholder security throughout the project lifecycle.
4. Financing Costs
This includes expenditures related to construction loans, loan interest, and other financing fees.
Example: Interest accrued during the financing phase for real estate development.
5. Project Management Costs
These are fees associated with coordinating construction activities and ensuring the project delivery aligns with the set timeline and budget.
Example: Hiring a project manager to oversee subcontractors and streamline administrative costs.
6. Marketing and Advertising Costs
Businesses may also include marketing and advertising expenses in their soft costs. These costs are not directly related to the construction process but are necessary for attracting potential clients and showcasing the final product.
Example: Designing a website or brochure highlighting the features of a newly constructed building.
7. Inspection and Compliance Fees
Costs related to ensuring buildings comply with safety regulations and inspections.
Example: Inspection fees for electrical systems or fire safety.
8. Post-Construction Services
These expenses occur after the physical construction is complete and include maintenance assessments or interior design.
Example: Landscaping or furnishing work to enhance the final building.
9. Rental Fees
In some cases, companies may need to rent space for meetings or temporary office accommodations during construction. These can be considered soft costs as they are not directly tied to the physical construction of the building but are still necessary for project execution.
Example: Renting a conference room for weekly project team meetings or leasing temporary office space for on-site personnel.
Why Are Soft Costs Important?
Managing soft costs is crucial because they can add up quickly and significantly impact a project’s overall budget. In fact, soft costs typically make up around 30% of the total construction budget. Ignoring these expenses or failing to accurately estimate them can lead to cost overruns.
Soft costs hold remarkable significance as they shape a project’s foundation, timeline, and ultimate success. Here’s why they matter.
1. Budget Accuracy
Neglecting to account for soft costs can lead to a substantial budget shortfall, causing disruptions in the construction process.
2. Time and Cost Efficiency
Properly managed soft costs streamline administrative processes and eliminate potential delays caused by inadequate project assessments or planning.
3. Risk Management
Accurately estimating insurance and legal fees can prevent cost overruns and provide a safety net for unforeseen circumstances.
Examples of Soft Costs Across Project Phases
To better understand how soft costs come into play during a construction project, let’s explore some practical examples across different phases. These examples highlight how soft costs are applied in real-world scenarios.
- Preconstruction Phase: Feasibility studies, legal paperwork, and design fees are significant soft costs at this stage.
- Construction Phase: Administrative costs like project management fees and insurance coverage play an active role here.
- Post-Construction Phase: Landscaping, inspection fees, and professional services like interior design often conclude the project lifecycle.
Best Practices for Managing Soft Costs
Managing soft construction costs effectively requires solid planning and innovative tools. Here are strategies to keep these costs in check.
1. Detailed Planning and Budgeting
Begin with precise cost estimates and allocate sufficient funds to soft costs in your overall budget.
2. Regular Monitoring
Track and assess soft costs in real-time to identify discrepancies early and prevent overruns.
3. Leverage Technology
Adopt modern data analytics tools like Zebel to ensure accurate cost data and comprehensive expense oversight.
Zebel and Construction Cost Estimation
Zebel is a powerful construction cost-estimating software built for general contractors and developers. Designed to improve project efficiency, Zebel seamlessly integrates features that enable teams to manage both hard and soft costs effortlessly.
Core Features of Zebel
- Historical Cost Database enables accurate cost estimates by leveraging standardized project data.
- Conceptual and Detailed Estimating allows estimation at all design phases to refine budgets throughout the project lifecycle.
- Automated Bid Management Module helps compare subcontractor proposals, reducing administrative costs.
- PreconConcierge™ Services clean up your historical data for seamless onboarding, enhancing project management capabilities.
Benefits for Soft Cost Management
- Streamlined Efficiency: Eliminate spreadsheets and automate workflows for speed and accuracy.
- Improved Collaboration: Enhance communication between clients and teams through centralized cost insights.
- Reduced Error Rates: Avoid human error with Zebel’s data-driven platform, ensuring soft costs align with the budget.
Why Choose Zebel for Soft Cost Management?
By combining innovation with expertise, Zebel empowers preconstruction professionals to focus on what truly matters—speed, accuracy, and efficiency. Teams relying on traditional tools like Excel can shift to Zebel for faster estimates and better overall project management.
Key Advantages of Zebel
- Shorter estimating timescales—from weeks to hours.
- Greater budget accuracy with reduced risk of overruns.
- Integration with other project management tools for holistic oversight.
Make Soft Costs Manageable with Zebel
Soft costs might not be as visible as hard costs, but their impact on the success of a construction project cannot be overstated. By understanding what they entail, preparing for them in your project budget, and using advanced tools like Zebel, you can ensure your construction project stays on track and on budget.
Take control of your construction project’s soft costs. Book a demo with Zebel today and see how it can revolutionize your preconstruction process.
Frequently Asked Questions
What is the average soft cost contingency?
The average soft cost contingency typically ranges from 10% to 20% of the total construction budget, depending on the project’s complexity and scope. This allocation helps account for unforeseen expenses, ensuring the project remains financially secure.
Is demolition a soft cost?
No, demolition is generally considered a hard cost because it directly involves labor, equipment, and materials required for physical construction activities. Soft costs, on the other hand, are more focused on indirect expenses like design, permits, and administrative fees.
What are soft costs in a builder’s risk policy?
Soft costs in builder’s risk refer to expenses related to delays caused by covered risks, such as lost rental income, additional loan interest, or extended project management fees. They are typically included in comprehensive builder’s risk insurance policies to mitigate financial impact.
