What Are Soft Costs in Construction?

Soft costs are the indirect costs required to support a construction project but not directly tied to physical building work. These are often called “invisible costs” because they don’t result in tangible construction.

Soft costs include:

• Professional fees – architect, structural engineer, quantity surveyor
• Planning and permits – planning permission, building control fees
• Surveys and reports – topographical survey, asbestos survey, ecological report
• Legal fees – solicitor costs, land registry, contracts
• Insurance – contractor’s all-risk insurance, professional indemnity
• Finance costs – loan arrangement fees, interest during construction
• Project management – site supervision, coordination
• Testing and commissioning – building regs sign-off, air tightness tests
• Contingency – allowance for unforeseen costs (typically 5-10%)

Soft costs typically represent 15-30% of total project costs on commercial builds and 10-20% on residential projects.

Examples of Soft Costs

For a £625,000 total project budget (same extension above):

• Architect fees (8-12% of build cost): £45,000
• Structural engineer: £8,000
• Quantity surveyor: £6,500
• Planning permission and building control: £3,500
• Surveys (topographical, drainage): £4,000
• Legal fees: £3,000
• Insurance: £5,000
• Project management (if not self-managed): £20,000
• Contingency (10% of hard costs): £50,000
• Finance costs (loan interest): £5,000

Total soft costs: £125,000 (approximately 20% of overall project budget)

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Hard Costs vs Soft Costs: Key Differences

Factor	Hard Costs	Soft Costs
Definition	Physical construction costs	Indirect project costs
Tangibility	Result in physical building	No physical output
Timing	During construction phase	Throughout entire project lifecycle
Variability	More predictable (based on measured quantities)	Less predictable (time-dependent, professional rates vary)
% of Total Budget	60-85%	15-40%
Examples	Bricks, labour, concrete	Architect fees, permits, insurance

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Why the Distinction Matters

Understanding hard vs soft costs is critical for:

1. Accurate Budget Planning

Many builders and clients underestimate soft costs. A common mistake is budgeting only for hard costs and being caught out by professional fees, permits, and finance charges.

Example: A £500,000 build cost can easily become £625,000+ once soft costs are added.

2. Financing and Cash Flow

Lenders often distinguish between hard and soft costs when approving construction finance. Hard costs are typically easier to secure funding for, as they’re tied to tangible value.

Soft costs may require different financing structures or upfront payment.

3. Cost Control and Value Engineering

When projects run over budget, identifying which category is overspending helps target solutions:

• Hard cost overruns → review materials, labour rates, scope changes
• Soft cost overruns → review professional fee agreements, insurance terms, contingency drawdown

4. Contractor vs Client Responsibility

In many contracts:

• Contractors price and deliver hard costs
• Clients typically manage soft costs (though some may be contractor-managed)

Understanding this split clarifies who pays for what and when.

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How to Estimate Hard Costs

Hard costs are estimated using a bill of quantities (BoQ) approach:

1. Measure all physical quantities – square metres of flooring, linear metres of walls, cubic metres of concrete

2. Apply unit rates – cost per m² for plastering, cost per m for brickwork

3. Add labour costs – based on day rates or subcontractor quotes

4. Include site overheads – site welfare, scaffolding, waste disposal

Use our Building Cost Calculator to generate quick hard cost estimates based on project type and size.

For labour rates, see our guide to UK construction labour rates.

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How to Estimate Soft Costs

Soft costs are harder to estimate early in a project, but typical benchmarks are:

Soft Cost Item	Typical % of Hard Costs
Architect fees	8-15%
Structural engineer	1-3%
Quantity surveyor	1-2%
Planning & building control	0.5-1%
Surveys	0.5-1%
Legal fees	0.5-1.5%
Insurance	0.5-1%
Contingency	5-10%
Finance costs	Variable (depends on loan terms)

Total soft costs typically range from 15-30% of hard costs.

Soft Cost Estimation Example

For a project with £500,000 hard costs:

• Assume 20% soft costs = £100,000
• Add to hard costs: £500,000 + £100,000 = £600,000 total budget

Always get fixed-price quotes from professionals (architects, engineers, QS) rather than assuming percentages.

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Common Mistakes When Budgeting Hard and Soft Costs

1. Forgetting Contingency

Contingency is a soft cost, but many builders allocate it incorrectly or skip it entirely. Always include 5-10% contingency for unforeseen issues (ground conditions, design changes, material price fluctuations).

2. Underestimating Professional Fees

Architect and engineer fees can be significant. Don’t assume a flat 10% — get written quotes based on your specific project scope.

3. Ignoring Finance Costs

If you’re using a development loan or bridging finance, interest during construction is a real cost. Calculate this based on your draw-down schedule and loan term.

4. Not Tracking VAT

VAT treatment varies:

• New builds may qualify for zero-rated VAT
• Extensions and refurbishments are usually standard-rated (20%)

This impacts both hard and soft costs. See HMRC guidance or consult a tax advisor.

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Hard Costs vs Soft Costs: Regional Variations in the UK

Construction costs vary significantly by region. Hard costs in London can be 20-40% higher than the UK average due to:

• Higher labour rates
• Material transport costs
• Site access challenges
• Local planning requirements (which also increase soft costs)

Regional hard cost benchmarks (£ per m²):

• London: £2,500 – £3,500
• South East: £2,000 – £2,800
• Midlands: £1,800 – £2,400
• North: £1,600 – £2,200
• Scotland/Wales: £1,700 – £2,300

Soft costs are also higher in London due to premium professional fees and higher insurance/legal costs.

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Tools to Help You Budget Hard and Soft Costs

Accurate budgeting requires detailed estimation. Use these free tools:

For Hard Costs:

• Building Cost Calculator – estimate total build costs by project type
• Extension Cost Calculator – calculate extension hard costs
• Labour Rate Guide – current UK trade rates

For Soft Costs:

• Create a spreadsheet tracking all professional fees, permits, and contingency
• Request quotes from 2-3 professionals (architects, engineers, QS) to compare
• Factor in 10-15% of hard costs as a starting assumption, then refine with actual quotes

For Total Budget Planning:

• Total project budget = Hard costs + Soft costs
• Always include contingency (5-10% of hard costs)
• Track spend vs budget throughout the project using a cost tracker

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FAQs: Hard Costs vs Soft Costs

What percentage of a construction budget should be hard costs?

Typically 60-85% of the total budget. Residential projects tend toward the higher end (70-85%), while commercial projects may have more soft costs (60-75% hard costs).

Are preliminaries hard costs or soft costs?

Preliminaries (site setup, welfare facilities, scaffolding, site management) are generally classified as hard costs, as they’re directly tied to enabling physical construction.

Is VAT a hard cost or soft cost?

VAT is neither — it’s a tax applied to both hard and soft costs. However, VAT on construction can be zero-rated (new builds) or standard-rated (refurbishments), so always factor it into your total budget.

Do soft costs increase if a project is delayed?

Yes. Many soft costs are time-dependent:

• Finance costs (loan interest) accrue longer
• Insurance premiums may increase
• Professional fees may include delay clauses

This is why accurate scheduling and contingency planning matter.

Can soft costs be reduced?

Yes, through:

• Competitive tendering for professional services
• Self-managing elements (if you have expertise)
• Avoiding scope changes (which trigger design rework fees)
• Securing fixed-price quotes rather than hourly rates

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Summary: Hard Costs vs Soft Costs

Cost Type	What It Is	Typical %	Examples
Hard Costs	Physical construction costs	60-85%	Materials, labour, groundworks, MEP
Soft Costs	Indirect project costs	15-40%	Architect fees, permits, insurance, contingency

Key takeaway: Always budget for both. A £500,000 build (hard costs) typically requires £75,000-£150,000 in soft costs, bringing your total budget to £575,000-£650,000.

Use our Building Cost Calculator to estimate hard costs, then add 20-30% for soft costs to get a realistic total project budget.

For professional cost planning, consider hiring a quantity surveyor to prepare a detailed bill of quantities and soft cost schedule.

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Need help estimating your project? Use our free construction calculators or speak to a quantity surveyor for accurate, detailed cost breakdowns.