Indirect costs in construction

Indirect costs (or indirect spend) are those costs that are necessary to keep a process or project running, but which do not vary directly with the volume of goods or services produced and are not easily attributable to a particular process or project. This might for example include; rent, insurance, advertising and marketing and so on. These types of indirect costs may be referred to as overheads.

This is as opposed to direct costs, which are those costs incurred directly by production and include items such as raw materials, labour, equipment, power and so on. Direct costs can be traced and are attributed to a cost ‘object’ which may be a product, department, cost centre or project.

So, indirect costs do not vary directly with product ion levels, whereas direct costs remain dependent on production levels and will vary when production is increased or decreased.

NB Cost prediction, Professional Statement, 1st edition, published in November 2020 by the Royal Institution of Chartered Surveyors (RICS), defines indirect costs as: ‘…costs incurred during construction works that cannot be attributed to any one section of the works; they may be fixed (e.g. the cost of bringing accommodation to the site) or time-related (e.g. the cost of insurance or security personnel).’