What Are Hard Costs and Soft Costs?
Hard costs and soft costs are the two halves of every construction budget. Hard costs are the physical, on-site costs of building the works — labour, materials and plant — measured from the plans and priced against a rate. Soft costs are everything else needed to deliver the project but not built into the structure itself, including design fees, approvals and permits, insurances, finance costs and project management. A budget that only prices hard costs looks complete but is missing a real share of what the project will actually cost to deliver.
Key takeaways
- Hard costs are the physical construction costs — labour, materials and plant — measured from the plans and priced against a rate.
- Soft costs are the non-construction costs of delivering a project — design, approvals, insurances, finance and project management.
- Soft costs commonly add somewhere in the order of 10 to 20 per cent on top of hard costs, though the true figure depends on project complexity and consultant scope.
- Preliminaries sit close to hard costs — they are priced project-wide rather than against a single trade item, but they are still a cost of construction, not a soft cost.
- A complete cost plan or tender budget lists hard and soft costs separately, so nothing needed to actually deliver the project is left out.
What Are Hard Costs?
Hard costs — sometimes called brick-and-mortar costs — are the direct, physical costs of constructing the works: everything measured from the plans and priced against labour, material and plant rates. If it gets built, poured, fixed or installed on site, it is a hard cost.
Hard costs are what a quantity takeoff and a priced Bill of Quantities capture — they scale with the size and complexity of the actual building work, and they are the costs a builder or estimator has the most direct control over.
- Labour — trades and their on-costs, on site and off site.
- Materials — everything fixed into or consumed by the works.
- Plant and equipment — hire, fuel and operator costs.
- Preliminaries — site-wide running costs such as supervision, site sheds and temporary services.
What Are Soft Costs?
Soft costs are the costs of getting a project designed, approved, financed and managed — necessary to deliver the project, but not part of the physical construction itself. They exist whether the job is big or small, and they are usually set well before the first hard-cost dollar is spent on site.
Soft costs are typically priced as fees, allowances or percentages rather than measured quantities, which is exactly why they are easy to underestimate — there is no plan to take them off.
- Design and consultant fees — architect, engineer, surveyor.
- Approvals and compliance — council fees, permits, certification.
- Insurances — contract works, professional indemnity, public liability.
- Finance costs — loan interest and establishment fees during the build.
- Project management and administration.
Why a Budget Needs Both
A budget priced from hard costs alone can look complete and still fall well short of the real cost of getting a building finished, because none of the money spent before, around and after the physical build has been accounted for.
Soft costs do not disappear on smaller residential jobs either — a homeowner still pays council fees, still needs insurance, and still finances the build. The costs are simply smaller and easier to miss.
| Cost category | Type | Example items | Approx. amount |
|---|---|---|---|
| Labour, materials & plant | Hard cost | Framing, concrete, trades, hire | $385,000 |
| Preliminaries | Hard cost | Supervision, site shed, temporary services | $45,000 |
| Design & consultants | Soft cost | Architect, engineer, energy report | $25,000 |
| Approvals, compliance & insurances | Soft cost | Council fees, permits, contract works insurance | $17,000 |
| Finance & project management | Soft cost | Loan costs, PM fees | $28,000 |
A useful test
If the cost still exists when the site is empty and nothing has been built yet — design, approvals, finance — it is a soft cost. If it only exists once work starts on site, it is a hard cost.
Where Preliminaries and Overheads Fit
Preliminaries and overheads are two categories often confused with soft costs. Preliminaries are project-specific, site-wide running costs — supervision, site sheds, temporary services — and they are hard costs because they exist only once work starts on a specific site.
Overheads, by contrast, are the builder’s general business running costs — office rent, admin wages, company insurances — recovered across every job through margin, not costed to one project. They are neither a hard cost nor a soft cost of the project itself.
- Hard costs — physical construction, including preliminaries.
- Soft costs — design, approvals, insurance, finance, project management.
- Overheads — the builder’s general business costs, recovered through margin.
How My Trade Hub Helps You Budget Both
My Trade Hub’s estimation engine measures your plans and applies your own editable rates library automatically, generating the hard cost side of your Bill of Quantities — labour, materials, plant and preliminaries — without measuring by hand.
That leaves more time to properly scope the soft costs around it. Design fees, approvals, insurances, finance and project management can be added as their own priced line items in the same estimate, so the tender or quote going out the door reflects the full cost of delivering the job, not just the cost of building it.
Frequently asked questions
Are preliminaries a hard cost or a soft cost?
Preliminaries are a hard cost. They are priced project-wide rather than against one trade item, but like labour and materials they only exist because physical work is happening on a specific site — which is what separates a hard cost from a soft cost.
What percentage of a construction budget is soft costs?
There is no fixed figure, but soft costs commonly fall somewhere in the order of 10 to 20 per cent of a project’s hard costs, depending on how many consultants are engaged, how complex the approvals are, and how the project is financed.
What is the difference between hard costs and soft costs?
Hard costs are the physical costs of construction — labour, materials and plant. Soft costs are the non-construction costs of delivering the project — design, approvals, insurances, finance and project management. Both are real costs of the same project.
Do hard costs include the builder’s margin?
No. Margin is the builder’s profit and risk allowance added on top of cost, whereas hard costs are the underlying construction costs themselves. Margin is usually applied across the whole priced estimate, hard and soft costs together.
What soft costs are most often forgotten in a budget?
Finance costs and contingency for approvals delays are the two most commonly underestimated soft costs, since both depend on how long a project takes rather than on a fixed fee, and both are easy to overlook until the project is already under way.
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