CLOSER LOOK

CONTRACTOR MARKUPS & LABOUR COSTS

Overheads & profit

OH&P is often calculated by taking a building company’s turnover and dividing it by their annual fixed costs for running their back office, contract management etc. A typical small-to-medium main contractor might turnover £600,000-£800,000 per year and carry fixed office costs of, say, £75,000. At that level, the overhead percentage could justifiably be around 10%.

Profit is more of a commercial matter, but between 2.5% and 5% is pretty standard after salaries and costs have been paid. Adding this to the overheads gives you a fair markup figure that can be agreed for contract variations and prime costs related to external sub-contractors, suppliers and plant invoices.

Labour costs

There are two Rics-approved ways to value labour. Option A involves taking annualised tradesperson salaries and allowing for holidays, benefits, pensions, national insurance, training obligations etc, and then applying a transparent markup.option B, is more straightforward: the contractor can indicate all-in-rates for the various different trades to cover all of the above, as well as their overheads and profit. Ideally the rates would be provided on an hourly basis so, when you ask for some additional work to be carried out, the discussion can focus on the time involved for specific trade skills rather than trying to calculate an overall cost. When administered properly, this is fair and reasonable for both client and contractor.