The budget for any construction project includes both hard and soft costs. Hard costs are the moneys spent physically constructing a building. Soft costs go toward things that aren't physically solid but are just as vital, such as design costs, legal fees and permit processing. Soft costs represent a smaller part of the budget than hard costs.
The hard costs of a project are the most visible parts of the builder's work. They include the foundations, the structure, the interior finishes, electrical wiring and plumbing and the furnishings. The labor involved with putting the structure up is also a hard cost. Hard costs per square foot vary according to the project type. If a customer requires state-of-the-art precision engineering -- a high-tech manufacturing facility, a research lab -- the costs per square foot will be higher than an ordinary office building, for instance.
Unlike hard costs, the soft expenses aren't instantly visible. They include, for example, design fees, management fees, legal fees, taxes, insurance, financing costs, and administrative expenses. Legal requirements can increase soft costs. For example, the government may mandate the design include certain environmental features. Soft costs typically equal 6 to 10 percent of the hard costs on a commercial or government project, according to Mike Becker, Director of Sales and Marketing at Midland-Frantz Construction Group of Chicago. Soft costs can be 10 to 16 percent for residential construction.
Soft Affects Hard
The work covered by soft costs has a direct effect on the hard costs. The more efficiently the architect's design uses space, the lower the hard costs may be. The American Institute of Architects says that the simplest, easiest building to construct would be simple and square, but that doesn't make the building very attractive. Adding notches and shadow lines to the building envelope can improve its appearance, but the complexity of constructing them can increase the hard costs.
The Construction Budget
Hard and soft costs don't comprise the total construction budget. The cost of purchasing the land is a separate item, and the contractor's budget itself usually includes more than the company's costs; the contractor figures in overhead, profits and usually a contingency budget. A contingency budget equal to 10 percent of hard costs can protect against the unexpected, such as the client requesting a sudden change. Soft costs are more predictable, so there's less need for contingency.