Understanding the Difference Between Hard and Soft Costs in Construction

Construction projects require careful planning and cost estimation to ensure they are profitable investments for business owners. One crucial aspect of creating an accurate construction cost estimate is understanding the difference between hard and soft costs in construction. 

Below, we provide a comprehensive overview of hard and soft costs in construction, highlighting the key differences between these two types of expenses and how they can impact your project's overall cost estimate and budget. 

Hard Costs in Construction 

Hard costs, also called "core" or "tangible" expenses, refer to the costs directly associated with the construction of a building or structure, such as materials, labor, and equipment. These costs make up the majority of a construction project’s budget (typically around 70%) and are calculated from the start of the project’s construction phase until the construction activities are completed. They are typically fixed and only change significantly if the scope of the project changes.

• Construction labor and material costs — Salaries for construction employees and material purchases, such as steel, wood, concrete, insulation, glass, and other related building materials.

• HVAC systems and utility installation — System and installation costs of heating, ventilation and air condition systems, as well as electrical installation, plumbing, etc. 

• Safety systems and structures — Automatic fire sprinkler systems, fire alarm systems, fire escapes, building security systems, etc.  
  
  
• Interior and exterior finishes  — Finishing touches like wallpaper, countertops, flooring, paving of parking lots and other exterior sitework.
  
  
• Landscaping — Trees, grass, mulch, fertilizer, flowers, bushes, retaining walls, and any other landscaping elements that make the exterior of your building visually appealing and welcoming.

• Supply Chain and Market Conditions —Fluctuations in the supply chain due to factors such as inflation and global events, like the COVID-19 pandemic, can affect the cost of materials, labor, and project scheduling. For example, the price of steel skyrocketed during the pandemic and still remains significantly higher than pre-pandemic costs. 
  
  Keeping in mind that hard cost estimation is dependent on market conditions can give you better insight into what your overall construction project will cost and help you prepare a flexible timeline that works around material shipping delays. 
  
  
• Geographical Location — Hard costs can vary depending on the geographic location of your building and are often more expensive in areas with colder climates. For example, a building in northeast Wisconsin may require more insulation or a dependable roofing system that can withstand heavy snow and ice when compared to a building in Florida.  
  
  Other geographical factors that can influence hard costs are urban density, proximity to raw materials or distribution hubs, proximity to bodies of water, and site conditions.  A preliminary conversation with your design/build contractor or design professional can help expose potential areas of concern before you get too far down the road. You may have options to construct in a different location or weigh potential design considerations to mitigate costs. 

At A.C.E. Building Service, we take pride in providing commercial and industrial construction services using the design-build project delivery method. With this approach, our designers and contractors collaborate as a single team, allowing greater transparency regarding all hard and soft costs associated with your construction project.

Soft Costs in Construction 

Soft costs, also known as "overhead" expenses, are intangible costs not directly tied to the physical construction of a project, such as planning permits and legal fees. The scope of your project, local regulations, and loan interest rates can all influence your project’s soft costs. 

Soft costs are usually managed separately from hard costs and are spread out over the entire construction timeline, sometimes even continuing beyond the construction phase. This can make them more difficult to predict and estimate compared to hard costs.

The following are all examples of soft costs in construction: 

• Design fees
• Legal and accounting fees
• Land costs and/or surveying
• Marketing expenses promoting new building
• Financing costs and interest payments
• Security system contract fees
• Environmental and sustainability assessments
• Taxes and other governmental charges
• Movable furniture, computer equipment, phone systems

It's important to remember that choosing partners that contribute to soft costs wisely can save thousands of dollars in overall project costs down the road. For example, partnering with an effective design team may help drive a more efficient building design and ultimately lower project costs. Ensure that you have strong legal, financial, and insurance partners as well to keep soft cost fees in check and your best interests in mind.

Let’s Review — Key Differences Between Hard and Soft Costs in Construction

When the decision is made to build or expand, thoughts typically gravitate toward tangible elements like the price of wood and steel commodities, fuel, and labor. It’s easy to focus on hard costs as they are the items that make up one’s vision of their finished project, whereas closing costs, computer equipment, and office furniture typically don’t enter the discussion until later in the process - sometimes they are a complete afterthought. 

Below is a summary of the key takeaways to remember when it comes to hard and soft costs in construction, giving you a clear understanding of what each cost is and how they differ from each other. 

• Hard costs are direct expenses that are essential to the physical construction process, while soft costs are indirect expenses that are not directly related to the physical construction process.
  
  
• Hard costs typically include materials, labor, equipment, and other expenses related to the construction of the building or structure. 
  
  
• Soft costs typically include expenses related to design, permits, legal fees, insurance, financing, and other indirect costs that are necessary to complete the project.
  
  
• Hard costs are typically easier to estimate and are more tangible, while soft costs can be more difficult to estimate and may vary depending on the project complexity.
  
  
• Hard costs typically make up the majority of the project budget, while soft costs generally make up a smaller portion of the project budget.
  
  
• Hard costs are typically paid out during the construction process, while soft costs are spread out throughout the project timeline and may continue beyond the construction phase.

Learn how A.C.E. Building Service uses the design-build method to save time and money on commercial construction projects. Download our free eBook now! 

Why Choose A.C.E. Building Service?

At A.C.E. Building Service, we bring extensive experience to every commercial construction project. We’ll take the time to understand the complete scope of your construction project, including all hard and soft costs, providing you with the best project cost estimate. 

We are proud to be an exclusive distributor of the Butler product line in Northeast Wisconsin and the Lakeshore counties of Manitowoc and Sheboygan. With the help of Butler’s pre-engineered metal buildings, we are able to design and execute functional, tasteful, cost-effective, and efficiently constructed buildings under compressed project timelines.

If you have any questions about hard and soft construction costs or about our construction services, we are happy to help. Contact us today! We hope to hear from you soon.