Estimation of project overheads: A contractor’s perspective

Project overheads are the general cost of administering a project including provision of general plant, site staff and site-based services. An accurate estimation of the project overheads not only helps to improve the chance of success in bidding, but also serves as a profit centre for the contractor. However, a lot of contractors often overlook the importance of project overheads estimation due to its apparently low percentage contribution to the contract sum. The aims of this study are to explore the estimation method of project overheads practiced by the large contractors in Hong Kong, to identify project overhead items that are likely to be over- or under-estimated. The research is based on a survey followed by interviews within 49 large contractors in Hong Kong. The data collected confirmed that detailed estimation based on professional judgement was the most common method used by the estimators for estimating project overheads. The results indicated a strong misalignment between the perceived importance of project overheads estimation and the level of resources allocated to project overheads estimation by the contractors. Project overhead items like site management salaries, protection to works, and site cleaning were identified by the contractors as being significant in terms of inaccurate estimation. A framework of 23 project overhead items was generated to provide a basis for further study of project overheads estimation.