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
Can your business afford to ignore mental well-being?
£70 - 100 billion annually in UK construction sector.
Mental health in the construction industry
World Mental Health Day 10 October.
Construction awards provide relief in wake of ISG collapse
Spike in major infrastructure awards, housing up but short of targets, are ISG collapse impacts yet to come.
Biodiversity net gain with related updates and terms
Only 0.5% of applications subject to BNG in the context significant proposed changes to planning.
As political power has shifted from blue to red
Has planning now moved from brown to green?
The role of construction in tackling the biodiversity crisis
New CIOB Nature of Building digital series available now.
The Nature Towns and Cities initiative
Grants of up to 1 million for local councils and partners.
The continued ISG fall out October updates
Where to look for answers to frequently asked questions.
Building safety remediation programme for Wales
With 2024 October progress updates.
In major support package for small businesses.
Conservation and transformation
Reading Ruskin’s cultural heritage. Book review.
Renovating Union Chain Bridge.
AI tools for planning, design, construction and management
A long, continually expanding list, any more to add?
Robots in the construction industry
From cultural characterisations to construction sites.
Empowering construction with AI integration
New horizons with a human touch.
Key AI related terms to be aware of
With explanations from the UK government.