If you find yourself confused about the differences of these, we’re here to help.

Contractors will use one of three line items to recover costs

• General Conditions (indirect project costs; project specific costs that don’t result in a product)
• Cost of Work (direct project costs, result in the completion of the project)
• Overhead and Profit (indirect non-projects costs)

These items are sometimes confused for one another. Here’s a primer. General Conditions, Cost of Work and Overhead & Profit: How to spot the difference.

General Conditions

All construction estimates include a provision for general conditions. General conditions are used by General Contractors to recover indirect project costs. General conditions are project costs. But importantly these costs do not directly result in the product (i.e. the actual building project).

General conditions can vary wildly from contractor to contractor. The size and complexity of a project can impact the cost of general conditions. If your project is small, the contractor may not need to itemize each of his costs. But managing the logistics of a large project will come with more costs which need to be described by the contractor.

Often general conditions are expressed as a percentage of the cost of the work. This method of estimating is fine for most TI projects. However a large TI project will need to include an itemization with actual cost estimates.

Some common general conditions for a TI project might include:

• Parking fees
• temporary utilities
• rental equipment
• temporary offices
• vehicle maintanance
• project supervisory staff
• document administration
• security
• Project management

Cost of Work

Unlike general conditions, items that apply to the cost of work are direct project costs related to the building project. This one is easy. It’s the cumulative cost of all the material and labor required for a project. Your project will need wood, metal, electrical wire, lights etc. And you’ll need someone to purchase and install all those things. These all fall into the cost of work category.

Disagreements can arise if these costs are applied to general conditions. Since general conditions are occassionally a bit nebulous it can be easy to hide extra money here. Don’t allow a contractor to apply costs to general conditions unless your agreement specifically allows it.

Overhead and Profit

Similar to general conditions, contractors must recover other indirect costs not related to the project. You may have found the small TI contractor that works out of her truck. She requires minimal overhead to support her business More likely, your contractor will have an office with a support staff. Overhead and Profit covers those items for which the contractor needs to cover costs related to operating a business like staff salaries, printers, supplies, office rent and utilities. You’re likely to see this expressed as a percentage of the overall project costs. A typical OH&P rate is 5%.

Why it’s important

You need to know where your money is going on any project. By the same token a contractor has to be sure his costs are covered. After all you’re both in this to make money. You’d be forgiven for confusing which category each cost should fall. But it doesn’t have to be confusing. Remember to keep clear which costs are project costs and which are direct and you’ll be able to keep it straight. General Conditions, Cost of Work and Overhead & Profit: How to spot the difference.