Hard Costs Vs Soft Costs in Construction

Around 3,962,222 construction companies were counted in the US in 2023. They all invest time in budget estimating before executing a construction project. Two terminologies complicate the process when we drive into the construction estimating pool: Hard cost and Soft cost.

You must understand hard costs vs. soft costs in construction before starting your building estimation process. It is essential for multiple reasons.

Importance of knowing the Difference Between Hard & Soft Costs in Construction

Understanding the difference between hard and soft construction costs is essential to streamline estimation. Both costs affect the building budget in different ways and play roles in contrasting stages of construction. However, both help contractors excellently plan a project budget.

Furthermore, the quality of construction estimation decides the return on investment (ROI). A proper understanding of soft costs and hard costs can generate 100% ROI. It also helps you avoid overspending and crossing the desired deadlines.

Why Lenders Pay Attention to Hard and Soft Cost

According to our recent survey, >80% of lenders highly focus on soft costs vs hard costs. They use the following strategies to optimize hard and soft construction costs:

• Meticulous market analysis
• Competitive contract bidding
• Cautious selection of services

These strategies maintain the balance between both costs and enable contractors to control factors accordingly.

Let’s move to the focused topic of this blog post!

What is the Hard Cost in Construction?

Hard cost in construction is directly linked with construction projects. It starts and ends with the construction lifecycle. It is also called “tangible” or “core” expenses of a construction project.

Furthermore, hard cost examples include material, labor, and equipment expenses. According to research, the hard cost of construction covers 70% of the project’s total expense.

Moreover, this type of cost never changes until and unless changes are made in the construction project scope.

Examples of Hard Cost

Material and Labor Cost	Employees salaries Construction materials expenses, including steel, wood, plastic, concrete, rebar, glass, etc.
Utility Installation	HVAC systems cost Electrical systems cost Plumbing systems cost Mechanical systems cost
Safety Systems	Fire alarm cost Automatic fire sprinkler systems cost Security systems cost Fire escapes cost
Building Finishes	Wallpaper cost Paint cost Countertops cost Parking lot paving cost Flooring cost Exterior sitework expenses
Landscaping	Trees, grass, and flowers budget Mulch and fertilizers cost Bushes cost Resting wall expense

Factors that Can Influence Hard Cost of Construction

• Market Conditions

Market conditions, such as material rates fluctuate due to inflation and global happenings. COVID-19 is a significant example of such an event. The point is that the cost of construction continuously moves up and down with market changes.

• Geographical Regions

Geographical locations also impact the hard cost of construction. It is higher in areas white climate is the coolest. It is so because construction requires some additional systems, such as insulation, to keep the building’s internal environment cozy.

Also Read: CSI Divisions

What is the Soft Cost in Construction?

You must have heard the term “overhead expenses” in the construction world. It is actually the soft cost in construction and is intangible. These costs are not directly associated with the construction project under consideration.

Professionals always consider it separate from the hard cost and distribute it in the whole project according to needs. Unlike hard cost, it is not figured out in numbers and values.

All kinds of fees, such as designing, investigation, and surveying are covered in soft cost examples. Let’s explore more examples of soft cost in construction!

Examples of Soft Cost

Architectural & design fees	Feasibility studies fees Testing consultants expense Health and safety experts’ costs Engineering cost
Land, permit, & survey fees	Office trailers and equipment cost Cell phones expense Radio cost Communication systems expense
Finance & insurance fees	Loan generated interest Bank transaction fees Construction loan commitment expense Broker fees Permanent commitment cost Insurance cost Performance bond fees
Project Management Cost & Taxes	Staff compensation cost Temporary staffing expense Runners payment Subcontractors wages

Post-Construction Soft Cost

You will bear some expenses after executing the construction project. These include:

1. Unsettled legal fees
2. Leasing and sales fees
3. Construction management fees
4. Repair and maintenance cost
5. Replacement expenses
6. Additional landscaping
7. Security system installations
8. Taxes
9. Insurance

Hard Cost Vs Soft Cost

Hard Cost in Construction	Soft Cost in Construction
Directly connected with construction	Indirectly connected with construction
Involve tangible expenses	Involve intangible expenses
Easier to estimate	Can’t be estimated
Measurable with software	Not measurable with software
End with the completion of the project	Can proceed after project execution
Cover 70% of the project budget	Covers 25-75% of the project budget
Examples
Construction materials	All kinds of fees, such as permits
Safety systems and building equipment	Cell phones, radio, & communication systems
Landscaping cost	Subcontractors and project management cost
Interior finishes and life safety systems	Advertising and marketing cost

Hard Costs Vs Soft Costs Estimates for Construction Projects

Estimating the hard and soft costs of construction is complex. It needs budget evaluation expertise and industry kneading for accurate results. Therefore, you must follow some professional tips for on-point outcomes.

Tips to Deal With Hard and Soft Construction Costs

1. Never underestimate the soft cost as it covers a significant percentage of the project’s total expense. In adverse situations, you can experience significant financial crises during construction.
2. Always take proper measurements and use estimating software for hard and soft budgeting. It is essential to eliminate delays in the project lifecycle.
3. Remember to consider unexpected expenses (even in a case of 1%) to avoid financial surprises during the construction phase.

Wrap Up

So, there is a big difference between hard and soft costs. Hard covers 70%, while soft cost covers 25-75% of the construction project’s total budget. Hard is tangible, while the soft cost is intangible. Similarly, hard cost is directly associated with the construction project, while soft may last more than the actual project lifecycle.

The point to be noted is both need 100% accuracy to ensure the project’s success. So, be conscious when dealing with these two types of construction costs and give them value according to their worth in the construction project!

FAQs:

What are hard costs in construction, and how do they differ from soft costs?

Hard costs are directly connected with the construction project under consideration. It differs from the soft construction cost regarding tangibility, association, and percentage. Examples of hard costs include labor, equipment, and materials expenses.

Can you provide examples of hard costs versus soft costs in construction projects?

Hard Costs Examples: 

1. Labor, material, equipment, and tool expenses
2. Landscaping cost
3. Interior and exterior budget
4. HVAC and MEP systems installation cost

Soft Cost Examples:

1. Design, architect, and engineering fees
2. Permits, survey, and land fees
3. Rentals and communication system cost
4. Taxes and project management expenses

Which category typically accounts for a larger portion of the total project cost?

Actually, both cover approximately equal expenses with a little difference in values.

Hard construction cost – 70%

Soft Construction cost – 25-75%

However, the soft cost in construction has a little bit more coverage than the hard cost in construction.

When should you consider investing in reducing soft costs?

You can reduce soft costs in construction by hiring estimators for value engineering services. You can hire them once you have a complete construction project plan with timelines and at least rough estimates.

What are soft costs in builders’ risk insurance?

Soft cost describes the indirect expenses in the builder’s risk insurance. These include architects, designing, engineering, and inspection costs. land, real-estate, rental, tools, and construction equipment costs are also covered in this type.