Business costs not directly attributable to specific projects, including administrative expenses, equipment, facilities, and indirect labor costs.

Overhead refers to the ongoing business costs that are not directly attributable to specific construction projects or jobs, including administrative expenses, facility costs, equipment maintenance, insurance, and indirect labor that supports overall business operations. These costs are essential for running a construction business but cannot be directly charged to individual projects like direct labor and materials. Overhead expenses must be allocated across all projects through markup or overhead rates to ensure the business remains profitable and can cover all operational costs while maintaining the infrastructure necessary to complete construction work successfully.

Overhead costs in construction businesses include various categories such as administrative expenses covering office rent, utilities, office supplies, and administrative staff salaries, equipment costs including depreciation, maintenance, fuel, and storage for construction equipment, insurance premiums for general liability, workers compensation, and professional liability coverage, indirect labor costs for supervisors, estimators, project managers, and support staff, and facility expenses such as shop rent, warehouse costs, and yard maintenance. Additional overhead items may include professional services like accounting and legal fees, licensing and permit costs, marketing expenses, and technology costs for software and communication systems.

The calculation and allocation of overhead involves determining total annual overhead costs, calculating overhead rates as a percentage of direct costs or labor hours, and applying these rates to individual projects to ensure all business costs are recovered. Common methods include percentage of direct costs where overhead is calculated as a percentage of combined direct labor and material costs, labor hour basis where overhead is allocated based on direct labor hours worked on each project, and activity-based costing that assigns overhead based on specific cost drivers or activities. Accurate overhead calculation is crucial for competitive bidding while ensuring profitability.

Fun Fact: The concept of overhead allocation in business accounting was first systematized during World War I when manufacturers needed to accurately track all costs for government contracts, leading to modern cost accounting principles still used today.

• Overhead Door
• Overhead Rough-In