Hard Costs Explained
- Hard costs are direct costs incurred in relation to a specific construction project. Hard costs may be directly related to construction, including labor, materials, equipment, basic building services, shell features, interior enclosures, fit-out costs, mechanical services and electrical services. Hard costs are construction costs that are directly affected by decisions made by the architect working on the project. Other hard costs that are generally not included under the construction contract may include equipment, furniture and fixtures, and specialized mechanical or electrical services. These costs are often borne directly by the project owner.
Itemized Hard Costs
- Unlike soft costs that occur prior to project start, hard costs occur once project construction begins. Hard costs are mostly tangible assets acquired for the completion of the project and cover costs directly associated with the project. Hard cost items include physical items such as site preparation, grading, building structure, sewage tank, walls and landscape. Hard costs cover all types of visible improvements such as excavating, foundation, concrete work and framing; electrical work; mechanical costs for HVAC and plumbing; carpentry and roofing; contingency costs and over-budget costs due to changes in construction plans. All labor, tools and materials directly used in construction are also part of the hard costs.
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Soft Costs Explained
- Soft costs refer to costs incurred in addition to the direct construction cost. These costs cannot be charged to the specific project directly. They are generally incurred by the project owner, consultant and contractor. Soft costs are also called indirect costs; these costs, in contrast to hard costs, are not directly related to the physical construction of the project. The common perception of soft costs is they include non-construction costs such as marketing, taxes, finance charges, insurance, interest payments and general administration costs.
Itemized Soft Costs
- Soft costs are generally incurred for the most part before construction of the project actually begins. The items that are categorized as soft costs include legal fees, permits, real estate commissions and fees, advertising, promotions, financing fees, insurance, leasing, mortgages, loans, construction interest, design fees, taxes, management fees, owner's administration, supervision, engineering, licensing fees, toxic report fees, plan check fees, property assessment fees, sewage and water connection fees, and equipment rental fees.
Site Costs
Site costs normally cover the owner’s initial land acquisition and development costs for the project.
Capital Cost Components
Capital costs are normally subdivided into three major categories—site costs, hard costs, and soft costs. The accompanying diagram summarizes each of these categories.