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
A case study and a warning to would-be developers
Creating four dwellings... after half a century of doing this job, why, oh why, is it so difficult?
Reform of the fire engineering profession
Fire Engineers Advisory Panel: Authoritative Statement, reactions and next steps.
Restoration and renewal of the Palace of Westminster
A complex project of cultural significance from full decant to EMI, opportunities and a potential a way forward.
Apprenticeships and the responsibility we share
Perspectives from the CIOB President as National Apprentice Week comes to a close.
The first line of defence against rain, wind and snow.
Building Safety recap January, 2026
What we missed at the end of last year, and at the start of this...
National Apprenticeship Week 2026, 9-15 Feb
Shining a light on the positive impacts for businesses, their apprentices and the wider economy alike.
Applications and benefits of acoustic flooring
From commercial to retail.
From solid to sprung and ribbed to raised.
Strengthening industry collaboration in Hong Kong
Hong Kong Institute of Construction and The Chartered Institute of Building sign Memorandum of Understanding.
A detailed description from the experts at Cornish Lime.
IHBC planning for growth with corporate plan development
Grow with the Institute by volunteering and CP25 consultation.
Connecting ambition and action for designers and specifiers.
Electrical skills gap deepens as apprenticeship starts fall despite surging demand says ECA.
Built environment bodies deepen joint action on EDI
B.E.Inclusive initiative agree next phase of joint equity, diversity and inclusion (EDI) action plan.
Recognising culture as key to sustainable economic growth
Creative UK Provocation paper: Culture as Growth Infrastructure.