Soft Cost is a construction industry term but more specifically a contractor accounting term for an expense item that is not considered direct construction cost. Soft costs include architectural, engineering, financing, and legal fees, and other pre- and post-construction expenses. The term has been replaced in most contractor accrual accounting with the term General & Administrative abbreviated G&A.
For a contractor, Soft Costs are essentially construction costs incurred that are not labor and materials. Delay in Start Up insurance coverage and soft costs are not the same. Some soft costs may be incurred in the repair of a covered loss before the anticipated completion date is reached. These can be architect fees or engineering fees incurred to repair loss or damage to the insured property. Only those indirect costs that are above what would have been incurred up to the anticipated completion date but continue after such date due to the insured delay are soft costs that are covered by delay in completion or delay in start up coverage. Soft cost is a contractor accounting term for their expenses that are not associated with a particular construction task. Their construction trailer, water delivery, book keepers, etc. are all soft costs that continue on after the original anticipated completion date is reached, if the project is delayed. Only if the delay was caused by an insured loss would the insurance pick these expenses up, and only if the policy includes delay in start up coverage. Any repair costs which are not labor or materials and are indemnified to complete the repair of property loss should not be reported under delay in completion and there is no delay in completion until the anticipated date of completion is reached, and the project is not finished. Not all indirect costs are time related expenses that continue after the original date of completion. Those soft costs which are continuing fixed expenses that continue because the project is delayed by an insured loss are soft costs that should be included with the delay in start up values. A soft cost to a contractor, such as his administration costs, can be a hard cost to the owner because what the contractor invoices the owner is the owner's direct cost. If the owner employs engineers to overlook construction as the project is executed, this will be a continuing expense during repair if the repair is done after the original completion date and would be reported in the delay in completion values. If the engineer cost was a one time charge for a design, he may need to be consulted in order for the loss to be repaired. This expense does not occur because of a delay, but is incurred to repair property damage and hence should be included in the construction costs if the intention is for that expense to be covered in the indemnification depending on policy wording. If the project is insured to the extent of the reported values, and that value was left out to compute the premium, the company may decline that cost in the indemnification.
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