How to Classify Hard Costs in Construction
Hard Costs are tangible assets that you need to acquire to complete your construction project. Usually, hard costs are easily quantifiable and can be determined with such certainty that usually they are detailed by an experienced estimator. In general, hard costs represent any part of the work or costs associated with the actual project and as a good rule of thumb, hard costs could be around 70% of your total construction cost.
Hard Costs Components on a Construction Project
These costs are normally related to the engineering and design process and are subject to change depending on the AE decision, so that's another way of differentiating between soft costs and hard costs. Below is a list of common construction hard costs.
- Building structure: Hard costs associated with the structure. This category includes all labor and material required to complete the whole building or structure. Everything that is quantifiable and can be estimated must form part of the hard costs.
- Site: The difference from the first one to this, is that this category includes all utilities underground, aerial, water systems, drains, fire, paving, grading, etc. Like explained above, site piping, a material used for paving, sewers, and site work are also part of the hard costs.
- Landscape: Hard costs related to landscaping works, including grass, lawns, trees, mulch, shrubs, fertilizer, and every other material included in the construction of the projects based on the architectural drawings.
- Contingency: Contingency is a reserved amount of money covering all estimated unforeseen conditions that might affect the construction process. Although it is not an amount that you can measure, it can be estimated from historical data between a five and ten percent of the total project costs for new projects and between 10 and 20 percent for remodeling projects.
- Change orders: Might be included in the building structure item in the hard costs. Some builders separate this item from building a structure, for accountability process, but it also includes all additional expenses related to the construction of the project. Insurance costs are normally not included as hard costs and the owner might ask you to submit those as separate line items.
- Overhead: Normally everything that is rolled under the general conditions is classified as hard costs. These are the costs associated with doing business, like the staff, management, temp facilities, utilities, tools and safety and security costs. It is important to understand that all permits and insurance costs are also considered as hard costs.
How to Estimate Hard Costs
Now that you know that hard costs can be estimated or quantifiable, it's now time to understand the process of estimating these costs. The first step in the project planning is to provide a conceptual estimate. Conceptual estimates are preliminary estimates ranging between 30% and 50% accurate and sometimes are developed doing parametric estimating or using a model.
During this phase, contingency can be as high as 50%. The second stage of the estimating process is when the preliminary budget is developed, providing a range of accuracy between 15 and 30 percent. This estimated is completed using historical information, bids, proposals, and contingency is now reduced to 20%.
Once the project is being designed, the estimator will review the information received and a definitive hard cost estimate will be developed. Now estimated and hard costs will be ranging between 5% and 15% accurate and are normally developed when the design is at 75 or 100% completed. During this phase contingency is at 15% as more details emerge from the construction drawings and bids are received, general conditions have been determined and escalation costs are also built-in in the estimate.
Finally, hard costs are fully developed when complete plans, specifications, contracts and special provisions are received from the owner. Detailed estimates are developed, the level of accuracy is at 5% or lower and almost all contingency is removed as the scope has been completely defined. During this stage, hard costs can be developed carrying only 0 to 10 percent contingency.