Overheads
In accounting, the term ‘overheads’ refers to expenses that are paid by an organisation on an ongoing basis. Overheads can be fixed (i.e. the same each month) such as rent on office buildings, or variable (i.e. fluctuating depending on business activities) such as delivery costs. Overheads can also be semi-variable, where part of the expense is incurred at a fixed level and another part fluctuates, such as utility charges.
In construction contracts, overheads are often priced proportionately against a project and are the calculated costs of running the company contracted to carry out a project. Often these costs are described as head office administrative costs (in some cases there may also be factory or manufacturing overheads).
Head office costs might include; property costs, finance charges on loans, insurances, staff, taxes, external advisors, marketing and tendering activities and so on. Most contracting organisations will calculate a percentage against project costs to be set against each project somewhere between 2.5% and 5% to cover head office services.
Site overheads such as site accommodation, insurance, and so on, are generally accounted for separately and in contractual terms are included in the preliminaries element of the contract.
On prime cost contracts the contractor is paid for carrying out the works based on the prime cost (the actual cost of labour, plant and materials) and a fee for overheads and profit. This fee can be agreed by negotiation or by competition, and may be a lump sum (which it may be possible to adjust if the actual cost is different from the estimate), or a percentage of the prime cost (which it may be possible to revise if the client changes the nature of the works).
[edit] Related articles on Designing Buildings
- Business.
- Business plan.
- Cash flow statement.
- Cost information.
- Cost overruns.
- Cost planning.
- Direct cost.
- Estimate.
- Head office overheads.
- How to calculate head office overheads and profit.
- Loss and expense.
- Margin.
- Organisation.
- Preliminaries.
- Profit.
- Profit and overheads.
- Project overheads.
- Revenue.
Featured articles and news
Copyright and Artificial Intelligence
Government report and back track on copyright opt out for AI training but no clear preferred alternative as yet.
Embedding AI tools into architectural education
Beyond the render: LMU share how student led research is shaping the future of visualisation workflows.
Why document control still fails UK construction projects
A Chartered Quantity Surveyor explains what needs to change and how.
Inspiration for a new 2026 wave of Irish construction professionals.
New planning reforms and Warm Homes Bill
Take centre stage at UK Construction Week London.
A brief run down of changes intentions from April in an onwards.
Reslating an ancient water mill
A rare opportunity to record, study and repair early vernacular roofs.
CIOB Apprentice of the Year 2025/26
Construction apprentice from Lincoln Mia Owen wins this years title.
Insulation solutions with less waste for a circular economy
Rob Firman, Technical and Specification Manager, Polyfoam XPS explains.
Recycled waste plastic in construction
Hierarchy, prevention to disposal, plastic types and approaches.
UK Net Zero Carbon Buildings Standard V1 published
Free-to-access technical standard to enable robust proof of a decarbonising built environment.
Prostate Cancer Awareness Month
Why talking about prostate cancer matters in construction.
The Architectural Technology podcast: Where it's AT
Catch up for free, subscribe and share with your network.
The Association of Consultant Architects recap
A reintroduction and recap of ACA President; Patrick Inglis' Autumn update.
The Home Energy Model and its wrappers
From SAP to HEM, EPC for MEES and FHS assessment wrappers.
Future Homes Standard Essentials launched
Future Homes Hub launches new campaign to help sector prepare for the implementation of new building standards.
Building Safety recap February, 2026
Our regular run-down of key building safety related events of the month.