Soft costs
Soft costs are the project costs that do not go into the physical building — design, permits, insurance, financing, legal and consulting fees — as opposed to hard costs, which are labour, materials and equipment.
Also known as: Indirect costs · Hard costs vs soft costs
The split is simple to state: hard costs are what you can point at when the job is finished, and soft costs are everything else it took to get there. Framing lumber is hard. The building permit, the architect, the survey, the construction financing and the insurance are soft.
The reason the distinction matters is that soft costs behave differently. Hard costs scale with the work and are relatively easy to estimate from takeoffs. Soft costs are lumpy, front-loaded, often fixed regardless of project size, and easy to leave out of an estimate entirely — which is how a job that looked profitable on materials and labour comes in thin.
They are also the costs that grow quietly when a schedule slips. Financing, insurance and site facilities keep accruing whether or not anyone is working, so a delay that adds nothing to the hard cost can still add meaningfully to the soft one.
What usually counts as a soft cost
Design and engineering fees; permits and municipal development charges; surveys, geotechnical and environmental reports; legal and accounting; construction financing and interest; insurance and bonding; project management and consulting fees; marketing and sales costs on a spec or development project; and post-construction items like commissioning and warranty administration.
Some costs sit on the line and get classified differently by different builders — temporary site facilities, site supervision, equipment rental. There is no universal rule. What matters is that your classification is consistent across jobs, because the value of the split is comparison, and an inconsistent split compares nothing.
Budgeting for them properly
The common approach is to carry soft costs as a percentage of hard costs, and it is a reasonable starting point for a rough order of magnitude. It is a poor way to finish an estimate, because the percentage that held on the last job reflects that job's size, financing and municipality, not this one's.
The stronger method is to list them the way you list hard costs — as their own line items with their own quantities and sources — and let the percentage be the result rather than the input. Permits are knowable from the municipality. Financing is knowable from the term and the rate. The estimate only benefits from guessing where a real number was available.
Related
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