Last edited 16 Oct 2020

Margin

The Code of Estimating Practice, seventh edition, published by the Chartered Institute of Building (CIOB) in 2009 suggests the term ‘margin’ refers to:

‘The sum that is required by an organisation, from a project, as a contribution towards its head office overheads and profit.’

Where profit is the money the project makes after accounting for all costs and expenses, and overheads refer to the costs of running the company, often described as head office administrative costs (although in some cases there may also be factory or manufacturing overheads).

Confusingly, profit may also be referred to as a ‘profit margin’. Profit margin is the percentage of the gross revenue that represents profit.

A report published in July 2018 by Construction Manager and Commercial Risk Management found a worrying gap between the margins construction professionals think they should be earning and what they actually earn. For example, nearly two-thirds of respondents said they would expect the appropriate profit margin for a main contractor under a design-and-build contract should be above 5%. In fact this is well above the average achieved in the industry.

Jason Farnell, managing director of Commercial Risk Management, said; "The survey responses are communicating clearly that the ratio of risk to reward in contracting is seriously imbalanced – put simply, the margins that contractors may expect to earn from projects is insufficient compensation for the uncertainty and risk exposure they face in delivering them.”

(Ref. http://www.constructionmanagermagazine.com/management/revealed-how-construction-margins-fail-make-risks/)

NB: The term ‘mark up’ refers to the sum added to a cost estimate to arrive at a tender sum, including margin, allowances for exceptional risks, and adjustments for commercial matters such as financial charges, cash-flow, opportunities (scope) and competition.