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
Shading for housing, a design guide
A look back at embedding a new culture of shading.
The Architectural Technology Awards
The AT Awards 2025 are open for entries!
ECA Blueprint for Electrification
The 'mosaic of interconnected challenges' and how to deliver the UK’s Transition to Clean Power.
Grenfell Tower Principal Contractor Award notice
Tower repair and maintenance contractor announced as demolition contractor.
Passivhaus social homes benefit from heat pump service
Sixteen new homes designed and built to achieve Passivhaus constructed in Dumfries & Galloway.
CABE Publishes Results of 2025 Building Control Survey
Concern over lack of understanding of how roles have changed since the introduction of the BSA 2022.
British Architectural Sculpture 1851-1951
A rich heritage of decorative and figurative sculpture. Book review.
A programme to tackle the lack of diversity.
Independent Building Control review panel
Five members of the newly established, Grenfell Tower Inquiry recommended, panel appointed.
Welsh Recharging Electrical Skills Charter progresses
ECA progressing on the ‘asks’ of the Recharging Electrical Skills Charter at the Senedd in Wales.
A brief history from 1890s to 2020s.
CIOB and CORBON combine forces
To elevate professional standards in Nigeria’s construction industry.
Amendment to the GB Energy Bill welcomed by ECA
Move prevents nationally-owned energy company from investing in solar panels produced by modern slavery.
Gregor Harvie argues that AI is state-sanctioned theft of IP.
Experimental AI housing target help for councils
Experimental AI could help councils meet housing targets by digitising records.
BSRIA Occupant Wellbeing survey BOW
Occupant satisfaction and wellbeing tool inc. physical environment, indoor facilities, functionality and accessibility.