What Types of Overhead Costs Could A Contractor Include In A Construction Claim?

[What Types of Overhead Costs Could A Contractor Include In A Construction Claim?] [Funnel Graphic]

Let’s talk a little bit about two types of overhead costs contractors might include in construction claims.

Field Office Overhead Costs

The first is field office overhead. We probably all easily recognize what field office overhead is. They are the costs the contractor incurs to maintain operations in the field, but typically they’re not costs associated with any one item of work.

Good examples of this would be the field office, the trailer, and if the contractor is renting a field trailer or office space specifically for a project. This field office cost isn’t associated with any particular item of work. You can’t attribute it only to concrete work or excavation or even drywall installation.

In order to efficiently manage the work, however, you must have a field office. You need a place to put your project manager and your project engineer and their clerical support. The field office is a common field office overhead cost, or site overhead cost.

Utilities to support that office and the performance of work are other examples. Let’s not forget the project managers themselves, the superintendents, the Porta-Johns, the computers, the paper, and all of the things that we need to maintain an office and presence in the field. None of these things are specifically associated with any particular item of work. Thus, they really aren’t paid for when we compensate the contractor for those particular items of work. That’s field office overhead.

Home Office Overhead Costs

The other kind of overhead is home office overhead. Home office overhead costs are overhead costs incurred by the contractor that are not associated with a particular project, but really are necessary to support the contractor’s operations as a whole. Again, the best example of this may be the contractor’s home office. You have to have a place to put the people that work in the home office and those people do useful and necessary things for the project. The estimating staff is used to estimate change orders and the project as a whole. The administrative staff handles payroll. Plus, the President and Vice Presidents and the CFO and all the other folks that run the company are housed in the home office. These are legitimate costs and they have to be covered in some way in order for a contractor to remain in business.

With regard to the difference between field and home office overhead, field office overhead costs are costs associated with a particular project, but aren’t associated with a particular item of work. Home office costs are costs associated with maintaining a business that aren’t specifically associated with a particular project.

You couldn’t really separate out a president’s time by project. The president works to forward the interest of the company as a whole and each of the projects benefits from that effort, but it’s not work that’s performed explicitly for any one project.

That explains the source of the two kinds of overhead costs you may see in a construction claim.

Scott Lowe is a Principal of TRAUNER and is an expert in the areas of critical path method scheduling, construction claim preparation and evaluation, and specification writing. He can be reached at scott.lowe@traunerconsulting.com.