What Are General Conditions in Construction? 6 Examples for Contractors

When it comes to new home construction, overhead continues to be the primary threat to a builder's bottom line. According to recent industry benchmarks, home builders currently maintain an average gross profit margin of approximately 20%. However, their average net profit—the actual take-home after accounting for all indirect expenses, not just labor and materials—typically sits between 8% and 11%.

In a market defined by higher financing costs and stabilizing material prices, failing to control your general conditions can quickly erode these gains. But what exactly are these costs, and how can you keep them in check? This guide breaks it all down for you.

What Are General Conditions in Construction?

General conditions in construction, specifically residential construction, refer to those miscellaneous costs that construction managers often overlook or don’t properly estimate in their budgets. This includes things like hooking up temporary utilities to a home under construction or spending time mapping out a scope of work for a new dwelling.

While most general contractors and home builders are laser-focused on typical construction costs—such as materials, labor, and equipment—you shouldn’t forget about general conditions costs. Otherwise, you risk budget overruns, unhappy clients, and dwindling profit margins.

Basically, general conditions are your overhead costs, and keeping them under control is one of the more challenging parts of running a construction project.

Do You Need General Conditions?

Can you skip general conditions costs? Absolutely not, and for one good reason: The term "general conditions" is essentially a catch-all category for any expenses that don't fall under the main categories of labor, materials, and so on.

After all, there are some costs you just can’t eliminate. For example, you might need to rent a job site trailer to manage your construction operation. Or you might need to buy building information modeling software to handle the three-dimensional rendering of the house you’re building.

However, you can reduce the amount of money you’re spending on general conditions costs. But to do so, you must thoroughly plan for the project and identify every possible expenditure to find saving opportunities. This will take a lot of work, but it will pay off at the end of the project.

What Is Included in General Conditions?

General conditions costs are many and varied, so listing them all would be a daunting task. Here are a few significant costs you can expect for most construction projects.

1. Utilities

New-build housing projects require temporary electricity and plumbing, so you must factor these costs into the project. You'll likely have to pay hook-up fees in addition to whatever the monthly costs of those utilities are.

2. Permits and Fees

Construction managers must navigate a complex web of permits and local fees, which vary significantly by jurisdiction. The national average cost for a building permit has increased to approximately $1,650. However, the price range remains vast: high-demand metropolitan areas or complex new builds can see fees as high as $8,500, while minor projects in small towns may still cost as little as $150.

3. Trailers

A project manager needs a place to work, and if there isn’t a good spot to do that at the job site, you must get a trailer. Depending on the size you need, renting a trailer can cost several hundred dollars per month. But buying a trailer outright may cost tens of thousands of dollars, depending on your needs. You’ll want to calculate what percentage of its life cycle was used for this project so you can understand the actual per-project cost of the trailer.

4. Mobilization

At the earliest stages of a construction project, when work is just getting started, you've got a lot of heavy equipment and materials to move into place. This can get expensive depending on what kind of home you're building and where. Estimate this cost carefully because this can have a wide range in terms of total price tag.

5. Cleanup

Once the project is over, you must clean up the site. That means cleaning up any dirt and debris, as well as hazardous waste and any other items left behind. You may need to hire a subcontractor to do this work.

6. Administrative Staff

The workers you employ at the construction site are an obvious expense, but what about your administrative staff? They may be responsible for several different projects throughout the year, so calculating how much time they're spending on this particular project may be more difficult. However, this is an expense you should not ignore.

How General Conditions Impact Overhead and Profit

If you haven’t done the requisite planning and budgeting for a project, general conditions can quickly inflate overhead and wipe out your profit margins, which is why it is so important to capture these costs.

It’s a lot easier to estimate how much you need in the way of materials or how many hours of labor are necessary to complete the project. Figuring out every miscellaneous cost is not nearly as easy and even with the best planning, you’re likely to be surprised by something.

Important Things to Remember

While this is a solid list of what to expect regarding general conditions costs, it is not exhaustive. These costs will differ greatly depending on the contractor and the type of project. The only way to truly know if you’ve covered everything is to do your own research.

Ask yourself a few questions before your next project:

• What costs did you run into during previous projects?

• Are you likely to encounter them in this project, or is there a reason to believe you won’t?

• What makes this project different from previous projects, and what additional costs might you expect as a result?

With those answers in hand, you can create a more exhaustive list than the one above.

Plan Correctly to Keep These Costs Under Control

General conditions costs are a good reminder to construction managers that three things reign supreme when tackling a new residential project: planning, planning, and planning.

Cutting corners because you don’t have enough time is not a good idea. You must make time at the outset of a project to protect your profit margins from cost creep throughout the project. Nothing beats finishing a project on budget with profit margins intact, so invest that time early to ensure your project’s success.

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