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 vs soft construction costs, 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 preconstruction phase until the construction activities are completed. They are typically fixed and only change significantly if the scope of the project changes.

Examples of Hard Costs in Construction

The following can all be considered hard costs in construction:

• Construction labor and material costs — Salaries for construction employees and material purchases, such as steel, wood, concrete, insulation, glass, and other related building materials.
  
  
• Foundation construction,  framing/structural work and roofing systems — Costs tied to the building’s structure, including foundation pouring, steel or wood framing, load-bearing walls, and roofing system installation.
  
  
• Site preparation and excavation — Costs associated with clearing the land, grading, excavation, soil testing, and preparing the site for foundation work and construction activities.
  
  
• 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. 

Click here for 5 inconspicuous factors you may not have considered in your initial project cost estimate!

What Can Influence Your Hard Costs Estimate?

Below are some key factors that may influence your hard cost estimate:

• Changes in Project Scope — Adjustments to the size, layout, or intended use of a building can directly increase or decrease hard costs. Even small design modifications, such as adding square footage or upgrading finishes, can impact overall construction expenses.
  
  
• Design Complexity and Material Selection — The level of architectural detail, structural complexity, and the types of materials chosen can significantly impact your hard costs. For instance, custom designs, high-end finishes, or specialized building systems typically require more labor and higher-priced materials compared to standardized designs. Early collaboration with your design-build partner can help balance aesthetics, functionality, and budget to ensure your project remains cost-effective.
  
  
• Supply Chain and Market Conditions — Fluctuations in the supply chain due to factors such as inflation and global events can affect the cost of materials, labor, and project scheduling. 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.

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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.

What Are Some Examples of Soft Construction 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

Managing Soft Construction Costs 

While managing soft costs can be challenging, it’s not impossible—and with the right approach, it can and should be done. Soft costs can quickly add up if not carefully tracked and managed. Choosing the right partners and project delivery method can make a significant difference in controlling these expenses.

Partnering with a contractor that uses the design-build project delivery method is one of the most effective ways to streamline both soft and hard cost management. In a design-build approach, the design and construction teams work under a single contract, allowing for:

• Fewer design changes — Integrated collaboration reduces the likelihood of costly revisions during construction.
  
  
• More accurate cost estimates — Continuous communication between designers and builders ensures that budgets reflect the project scope from start to finish.
  
  
• Better alignment with project goals — The team works together to maintain the owner’s vision while managing costs effectively.

Working with an experienced design-build partner helps owners control soft costs such as design fees, coordination time, permitting, and change-order expenses. This integrated approach not only improves efficiency but also enhances transparency, leading to smoother project delivery and, ultimately, lower overall project costs.

In addition to selecting a design-build contractor, it’s crucial to engage strong legal, financial, and insurance partners. These professionals help keep soft cost fees in check, protect your interests, and provide guidance throughout the project, ensuring that every aspect of your budget is properly managed.

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! 

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 soft costs like 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.

Wondering what your construction project will cost? Get a detailed estimate from our expert team. Contact us today to start the conversation.

Hard vs. Soft Construction Costs FAQs 

Why Choose A.C.E. Building Service?

At A.C.E. Building Service, we bring extensive experience to every commercial, industrial and manufacturing 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.