Indirect costs
Unlike direct cost —the materials, labor, and equipment physically built into each work item— indirect costs are the resources that keep the project running without belonging to any single item: supervision, the site office, stationery, insurance, or the salaries of administrative staff. Because they cannot be pinned to a specific cubic meter or square meter, they are spread over the total direct cost as a percentage.
They fall into two broad groups. Field (or jobsite) indirect costs are those generated on site: the salaries of the resident engineer, superintendent, and technical staff; warehouses, site offices, and camps; vehicles and fuel; communications; consumables and minor administrative equipment. Home-office indirect costs are the contractor's administrative backbone: management, accounting, IT, office rent, professional fees, and other structural overhead, prorated across all the projects the company runs.
On public works, breaking out indirect costs is generally mandatory. Public procurement rules require the contractor to itemize the indirects —both field and home-office— and express them as a percentage of the direct cost, so they can be built into the unit price alongside financing, profit, and any additional charges. On private projects the logic is the same, though the company sets the level of detail.
The indirect percentage is not fixed: it depends on the size and duration of the project, its location, and the company's structure. Large, long projects tend to dilute indirect costs and lower the percentage; small or short-duration projects push it up. That is why it is worked out case by case, adding up every indirect expense estimated for the life of the project and dividing it by the total direct cost.
Formula
Example
A project with a direct cost of $10,000,000 estimates field indirects of $900,000 (resident engineer, site office, pickup truck) and home-office indirects of $600,000 (prorated overhead). The total indirect cost is $1,500,000, so the indirect percentage is 1,500,000 ÷ 10,000,000 = 15% on the direct cost.
| Item | Unit | Quantity | Unit price | Amount |
|---|---|---|---|---|
| Materials | ||||
| Red clay brick | pza | 42.00 | $6.80 | $285.60 |
| Cement-sand mortar 1:4 | m³ | 0.030 | $2,150 | $64.50 |
| Labor | ||||
| Mason | jor | 0.180 | $520 | $93.60 |
| Laborer | jor | 0.180 | $380 | $68.40 |
| Equipment | ||||
| Small tools 3% | % | — | — | $4.86 |
Frequently asked questions
What is the difference between direct cost and indirect cost?
Direct cost covers the inputs physically built into each work item (materials, labor, and equipment). Indirect cost covers the administrative and operating expenses that make the project possible but cannot be tied to a specific item, so they are applied as a percentage of the direct cost.
How is the indirect cost percentage calculated?
Add up every indirect expense estimated for the life of the project —both field and home-office— and divide by the total direct cost; the result, multiplied by 100, is the indirect percentage applied in the unit price.
What is the difference between field indirects and home-office indirects?
Field (or jobsite) indirects are generated on site: resident engineer, superintendent, site offices, vehicles, and consumables. Home-office indirects are the contractor's company-wide overhead —management, accounting, office rent— prorated across every project it runs.