Business costs that support the project but cannot be tied to a specific piece of work.
Indirect costs are project expenses that cannot be attributed to a specific work item but are necessary to support project execution, such as home office overhead, insurance, bonding, and general administrative expenses. They are allocated across projects as a percentage of direct costs. Managing indirect costs is critical to contractor profitability.
Indirect costs determine the markup an estimator must layer onto direct costs to keep the company solvent, so under-allocating them produces bids that look competitive but lose money once overhead is absorbed. Accurately spreading home office overhead, insurance, and bonding across the active backlog is what separates a sustainable bid from a money-losing one.
Setting up the bid spreadsheet, the chief estimator applies a 9 percent indirect-cost burden on top of labor, material, and sub costs to cover home office overhead, insurance, and bonding before adding profit.
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