What Are Soft Costs in Construction? Everything You Need To Know In One Guide

Grouping the Most Common Soft Costs in Construction By Category

It is fairly straightforward to calculate the cost of the physical materials required for a construction project, but that's just the beginning of the total project management costs. You must also think about what is included in construction soft costs. A few examples of these are:

• Land Permits and Survey Fees - Survey and permit fees rack up quickly, particularly on a larger construction project. This includes appraisal fees, land survey fees, and necessary expenses.
• Rental Equipment Costs - It is generally more cost-effective to rent equipment necessary to complete a construction project. Purchasing that equipment outright might make sense if you’re constantly working on similar projects. However, those who only need to use the equipment ad-hoc rent the equipment. In turn, that comes with a cost. So, you must consider the equipment rental costs as part of your construction budget.
• Advertising Expenses - Advertising expenses are associated with building a reputation for your business and spreading the word. These expenses must also be rolled into the cost of a given project.

These are the top-of-mind things to consider when beginning the process of creating a budget for a given construction project. However, this is just the tip of the iceberg regarding soft costs.

Soft Costs in Construction: A Closer Look at Specific Examples

Now we’ve covered the broad scope of soft construction costs; it’s time to dig into the nitty gritty and look at specific examples. We’ll cover everything from niche project costs to legal fees and discuss any relevant considerations as we move through each soft cost.

But first, it’s important to understand what isn’t a soft cost in construction before we can discuss what is.

The Other Side of Soft Costs In Construction: Hard Costs

Hard costs are simple to understand, so we’ll keep this section short. Any tangible thing related to a construction project can be considered a hard cost.

This means, broadly, that materials and labor fill out the roster of hard costs in construction. Anything that doesn’t fall under materials and labor is classified as a soft cost. With this in mind, it’s probably not hard to see why 25 to 75 percent of all costs in construction are soft.

With that weighting in mind, let’s not waste any more time and look directly at specific examples of soft costs.

Architectural Fees, Engineering Fees & Interior Design Costs

If you work in construction, these are the kinds of soft construction costs you might not consider at first. The actual building of the structure likely falls to you, but before building commences, you’ve got to pay the architects and engineers to turn the project concept into something achievable.

Interior design is another soft cost that is often budgeted for at the early stages of a project. Because interior costs often blow out in a build, it pays to plan every detail while you have the architects and engineers at hand.

Surveys, Permits & Essential Paperwork

Regulations govern how and where construction projects can be completed. You must obtain all permits and paperwork required to run your project correctly. Additionally, you must consider the costs of performing land surveys or feasibility studies before the build begins.

Given this, remember to include an adequate budget for land surveying and legal compliance when evaluating the costs of completing a construction project.

Environmental Impact Assessments

Another set of expenses that you must think about when setting up a construction project is the environmental impact of your project. To determine this, an environmental impact assessment (EIA) is necessary. An EIA is a systematic process used to evaluate a proposed project or development's potential environmental consequences (and possible legal fees).

This assessment provides valuable information, allowing you to make informed choices about whether to proceed with the project and, if so, how to mitigate or manage its environmental impacts.

Equipment, Machinery & Temporary Facility Rental

When you're planning a construction project, it’s essential to factor in the cost of renting equipment. Renting is nearly always cheaper than buying all the equipment outright, so it’s a common soft cost across most projects in construction.

Insurance & Interest Costs

Sometimes, borrowing funds to complete a project might be necessary before you get paid. Borrowing money comes with interest costs. Make sure to include those borrowing costs when factoring in the cost of a project. Additionally, don't forget about the insurance cost – protect your project and the health and safety of those working on it.

Project Managers, Consultants, Accountants & Admin Staff

No build is worth starting without guidance and stability, usually from project managers, consultants, accountants and admin. While critical to a project's success, labor project costs can rack up for project managers and consultants. You never want to spend more than you’ve forecasted, so spending a lot of time on this soft cost before your project is highly recommended.

Advertising & Promotion

If the success of your project depends on selling the infrastructure after it’s completed, then you need to market it.

If this is the case, it’s necessary to think about the cost of advertising for the project and factor that into the cost of completing that project. Advertising is a costly expense, but it's best to try to get as much word-of-mouth advertising out there as possible to ensure you can turn a profit and move on to the next project!

Post-Construction Testing & Inspections

Following the construction of a building, inspections are necessary. Many of these requirements can differ by type of construction and locality. Inspection fees and safety testing post-construction should be added to project costs as another soft cost.

Security & Safety

Keeping everyone on the job site safe means hiring people who specialize in taking care of safety work. They will ensure that everyone is in keeping with the safety requirements necessary to allow everyone to work appropriately while they are on site. Also, security staff members are necessary to keep members of the public away from the area.

Legal Costs

You don’t plan to have legal concerns when you start a project, but they can sometimes pop up unexpectedly. Protecting your business against possible claims made against it means paying legal fees to have legal representatives who can protect your company and its interests on hand when you need them. Those individuals and the legal work that they do are a soft cost of a construction project that must be considered.

Where To Include Soft Costs In Your Project

Finding a place to tackle soft costs in construction alongside other project considerations can be time-consuming and difficult. Here are two common times when it makes the most sense to factor soft costs into project planning.

During Initial Budgeting

Begin your construction industry journey by establishing a comprehensive budget that goes beyond the obvious hard costs. Be sure to include the soft costs we mentioned, like permits, legal fees and design services. Break down your budget into tangible and intangible elements to account for all potential expenditures. Incorporating a contingency fund into your budgeting process isn't a bad idea. Unforeseen soft costs can sneak in, and having a financial buffer ensures your project and profit margins stay on track.

During Cost Refinement

After initial budgeting, there will be set times before a project commences where you can refine your construction costs a bit before forking over any cash. Collaborate closely with your team during this time to identify potential areas where soft costs can be further streamlined and reduced without compromising quality.

Don’t Let Soft Costs Rule Your Next Project: Get Simpro

Understanding soft and hard costs is the key to budgeting like a pro in the construction world. Now that you’ve got a better understanding of soft costs, why not make managing them a whole lot easier for you and your team?

Simpro’s project management software comes with a full suite of costing and estimating tools that account for every single soft cost in construction under the sun. Plus, our software includes many other powerful features that will help you streamline your next project. Request a demo with us today and see what the world of organized project management looks like!