There’s a lot more that goes into a successful job than just labor and materials. In fact, there’s a whole umbrella of costs you’ll incur on each project that go beyond the materials and labor indicated in the design documents. These expenses are called “general conditions”, and correctly estimating them can mean the difference between profit for your company – or loss.
Here you’ll find a quick overview of general conditions in construction, along with some best practices for estimating them.
Key Takeaways
General conditions represent the project costs needed to successfully complete a project other than the direct cost of labor, materials, and equipment associated with a specific trade. These indirect expenses can include a general contractor’s labor force (project managers, superintendents, etc) along with job site trailers, security, temporary power, and more.
Within CSI’s MasterFormat, you’ll find that Division 01 is actually devoted entirely to general requirements, and includes cost codes for temporary utilities, vehicle access and parking, and much more. In the context of job costing, the terms “general requirements” and “general conditions” are often used interchangeably. Some will reserve the term general conditions for the costs related to managing the work, including staffing and jobsite trailers, whereas general requirements are a bit closer to the project scope. Items like permits, temporary utilities and traffic control are more specifically considered general conditions. More often you’ll see both terms combined as general conditions, but it might be useful to separate them for more precise tracking and forecasting.
Typically, general conditions are handled by general contractors. However, there are certain things that might be included as part of subcontracts, such as specialized work like temporary utilities or work that should be shared across all trades like safety and job site cleanliness Still, it’s ultimately the GC’s job to account for the general conditions on a job and to make sure they are clearly outlined in the contract documents.
You might not think it at first glance, but general conditions can have a huge impact on a job’s financials – so much so that your profit margin for a job might rest on your ability to accurately calculate these expenses. So how can GCs get as close as possible on their estimates?
First and foremost, you’ll need to estimate who on your team will be on the construction site and for how long. Similarly for any resources you’ll need, like trailers or temporary power, you’ll want to estimate a start and stop date. Essentially, you’re trying to figure out just how long you’ll need everyone/everything.
Along with this info, you’ll want to pull historic data and estimates from previous jobs to give you a better idea of how much you spent on what. Over time, you’ll be able to see trends emerge, and can use this historic data to help you fine-tune your estimates so you don’t under (or over) shoot.
Generally speaking though, general conditions usually account for 5-10% of a job’s total cost.
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When prepping to make an estimate, it can be helpful to use a checklist. Here’s what we’d add to ours:
Another tip is to outline your general conditions ahead of any subcontracts to make sure certain items are included in the subcontracted scope (where appropriate). For example, it often makes sense to buy temporary jobsite lighting from the electrician.
Since general conditions for construction are so broad, it’s easy to run into a few issues. Here’s how to avoid them.
It happens to everyone: you think you’ve made a perfect schedule, but things end up taking much longer than you expected. Or, maybe something happened that was beyond your control, like an unusual weather event. Either way, underestimating your schedule can wind up costing you a lot of money.
Our main piece of advice here is to be realistic about how long you’ll need for any given activity. Ideally, the original sequence of work outlined will be able to stay as originally planned. Still, unexpected changes happen often, which means it’s helpful to include some wiggle room in your estimated costs.
Almost every construction job will require changes in the scope of work which requires every contractor’s favorite thing: change orders. Don’t forget to account for your own general conditions costs when issuing them. Change orders will consume your superintendent’s time to supervise, and schedule delays might mean that you’ll need to extend the duration of many of your general conditions like staffing and site facilities.
Sometimes change orders can be issued specifically for extended general conditions. This is common in jobs, where you’ll have an allowance of rain days based on historical rainfall, for example. If the rain days in a month exceed what is typical and the rain delays the critical path of the schedule, then a change order for the extended costs is likely justified.
Oftentimes, general conditions are not well monitored, which makes it easy for rising costs to slip under the radar. Regular monitoring of general conditions can help you appraise whether or not you’re burning through your budget too quickly. Regularly reviewing the rate of spending on your general conditions is essential to protecting your bottom line.
At the end of the day, understanding how to accurately plan and budget for general conditions in construction not only means smoother jobs, but more potential profit for your business – and who doesn’t want that?