Glossary

Hard Cost

Also known as: Direct Cost, Construction Cost

Hard costs are the direct, physical costs of constructing a project—site work, materials, labor, and equipment paid to the general contractor and its subcontractors—as distinguished from the soft costs of designing, financing, and administering the development.

Hard cost is typically the largest single component of a development budget and forms the base against which the GMP or lump-sum construction contract is negotiated. A hard-cost (or owner's) contingency is budgeted separately, outside the base contract amount, to absorb unforeseen site conditions and approved change orders without requiring additional capital calls. Hard costs are also the primary exposure to materials and labor escalation risk, which is why projects with lengthy entitlement timelines between budgeting and the start of construction often see the original hard-cost estimate become stale and require re-underwriting before the construction loan closes. In loan sizing, hard cost is the principal driver of the loan-to-cost calculation lenders use to determine maximum construction loan proceeds.