If you are acquainted with estimates prepared by contractors who specialize in custom home building, remodeling, commercial, or government work, most of them include a lot of indirect job costs or soft costs that most in the insurance restoration industry consider to be taboo. For those of us who use Xactimate or other insurance repair estimating platforms, you typically find that these programs default to only three or four line-item entries at the end of the estimate that are not directly associated with labor, materials, or equipment needed to perform the actual work. These factors are typically shown as a percentage to cover overhead, material sales tax, and maybe a couple other insignificant allowances. However, there are a lot of jobs that may come your way that require your estimators to venture out of their comfort zone and factor in additional out-of-the-ordinary costs.  

In this article, we will explore some fees, charges, and costs that may apply to some types of restoration projects that are well worth considering when writing your estimate of repairs. These types of costs can easily be added in Xactimate within the “Additional Charges” feature on the “Parameters” screen if you want to customize your own indirect or soft cost descriptions, fees, charges, and values. 

Keep in mind that not all of these items are always needed or applicable on all jobs, so it is the duty of the estimator to use their sound judgement as to what additional costs are warranted, necessary, and applicable.

Here are some examples of additional costs that may apply to restoration or reconstruction work: 

1. Overhead Burden10% – 15%+

   Not every company can survive off of the typical 10% to cover their overhead and this factor is something that doesn’t remain constant. This percentage depends on what your company needs to cover its annual operating costs in the good times as well as in slow times.

2. Construction Management Fee10%

   This is often used for large complex losses, high rises and commercial projects. A construction manager is someone who acts as a liaison between the contractor and property owner and helps oversee the project.

3. Insurance Burden3% – 10%

   Insurance these days is very expensive and depending on what type of services your company provides, determines what policies you may need. Although some may argue that this cost is part of your overhead or the cost of doing business, many policy premiums are determined by your gross sales, which means every job you do will have a soft cost percentage for insurance. Insurances that restoration contractors typically carry include: 

   • General liability (CGL)
   • Completed operations
   • Errors & omissions
   • Contractors’ pollution liability
   • Contractor umbrella
   • Contractors’ tools and equipment insurance 
   • Inland marine insurance
   • Construction equipment rental insurance
   • Business interruption insurance
   • Subcontractor default insurance
   • Employment practices liability insurance (EPLI)
   • Cargo insurance 
   • Warehouse legal liability insurance 
   • Bailee’s customer insurance (A bailee is a business or individual that temporarily holds or possesses someone else’s property under an agreement. This arrangement does not transfer ownership but imposes a legal duty to safeguard the property. This insurance covers the customer’s property in the event it gets damaged, lost , or stolen while in their care. This type of insurance would apply to restoration companies that provide packout, cleaning, and storage of personal property.)

   Typically, insurance premiums are based on the gross sales and/or payroll of the company when audited at the end of the policy period. For contractors who subcontract the bulk of their work to others or work on high-risk projects such as condominiums, the annual premium rate can be higher. If you do not provide a separate factor for your insurance burden alone, the typical 10% allowance for overhead could be wiped out, leaving next to nothing to cover the rest of the company’s operating expenses.

4. Performance & Payment Bonds2%

   These bonds are often required for larger losses and commercial work to protect the property owner or agency from contractors who may run into financial trouble during the job. Bonds act like an insurance policy and pays for another contractor to step in and complete the job or pay subcontractors and material suppliers.

5. Fund Control Fee.5%

   A fund control holds monies in an escrow account and processes payment vouchers issued by property owners or agencies to pay contractors and vendors. Funds can be from insurance proceeds, construction loans, or funds allocated directly from a property owner.  

6. Construction Contingency Fee5% – 10%

   This is an allowance that lenders often require for construction loans. This might be applicable on large commercial losses where supplemental estimates cannot be submitted or when policy limits have been exceeded. It may also apply in situations where a construction loan has to be obtained for the portion of the monies withheld by mortgage companies until the work is completed or when a coinsurance penalty is an issue.

7. Third-party Independent Building InspectorsLump Sum

   These inspectors are not employed by a municipality but are independent inspectors hired by either the contractor or property owner. These inspectors are often used for building code compliance and quality control. They are also used to identify pre-existing non-compliant building code issues prior to restoration work being executed, as well as progress inspections prior to installation of interior and exterior finishes. On fire losses where special inspections are required for installation of structural steel, certified welding, concrete or masonry testing, epoxied bolts, or sheer panel nailing, these inspectors are used to verify that the work specified on the plans or structural engineering specifications are met.

8. Warranty Fee Lump Sum

   This is a fee that covers callbacks on work completed. In situations where a subcontractor has done faulty work and cannot or will not correct his work, this fee will pay for correcting faulty workmanship during the warranty period.

9. Finance Fee5% – 10%

   This would be for the amount of money a mortgage company holds back. Mortgage companies and banks often withhold 10% - 50% of the insurance proceeds until the work is complete, which forces the contractor to finance the work or the property owner to get a loan. For example, if you have a $100,000 fire loss and the insurance company includes the lender on the claim proceeds, the check will have to be sent to the lender where they put it into an escrow account. Typically, lenders will release 20% up-front to get the work started and then another 30% once the work is 50% complete. In some cases, the balance of the claim proceeds, (which is $50,000 in this case) will be held until the work is 100% completed. That means someone has to finance $50,000.

10. Construction Consulting Fee5%

    This fee covers the cost for building consultants who may be needed to help determine restoration and repair methods, compile the scope of work, or reconcile differences between other third-party opinions or estimates.

11. Safety Compliance Officer or Consultant FeeLump Sum

    This allowance would cover daily site walkthroughs and hazard identification, toolbox and tailgate meetings, safety briefings, PPE checks and enforcement, Incident documentation and reporting, coordination with project managers and subs, compliance audits and OSHA recordkeeping.

12. Estimating Services Fee2% – 3%

    This would be used when estimating is outsourced or if an estimate is required for a job that you may not get. This fee can be waived if you get the contract for the work.

13. Adjustment for Local Market Conditions10%

    Presidentially or state declared disaster zones often involve special circumstances where labor and material shortages or supply chain interruptions can dramatically impact pricing. Here you may need to use the “Global Changes” feature in Xactimate to factor in an appropriate figure to account for local market conditions.

14. Interior Design FeesLump Sum

    If an interior designer’s services were used prior to the loss event where the property owner used their services to help select finishes colors, flooring, etc., this cost may be recoverable as part of the insurance claim.

15. Pre-Remediation Assessment FeeLump Sum

    This would be conducted by an independent environmental professional (IEP) to assess contamination from smoke, silica, lead, asbestos, mold, illicit drug residues, sewage, bloodborne pathogens, etc.

16. Post-Remediation Verification FeeLump Sum

    This is the equivalent of a clearance test. This verification would be conducted by an IEP and used to verify that contamination resulting from smoke, silica, lead, asbestos, mold, illicit drug residues, sewage, bloodborne pathogens, etc. have been properly remediated.

17. Toll Road and Parking FeesLump Sum

18. City Business License FeesLump Sum

19. Building Permit FeesPercentage

20. Tariffs, Special Taxes, or SurchargesPercentage

These fees depend on location and the requirements of the jurisdiction.

21. Subcontractor Bid Mark-up10% – 20%

    The practice of marking up a subcontractor’s estimate is common in the restoration industry. Here is where a percentage factor is added to a subcontractor’s bid before your overhead and profit. This should be considered, especially to cover unforeseen changes, cost increases, oversights, or estimate errors by the subcontractor, etc. In addition, marking up subcontractor’s bids helps to ensure that the overall gross profit of the project is maintained.

22. Travel and LodgingLump Sum

    This added cost covers out-of-town crews or subcontractors who have to work outside of their normal service area. It includes mileage, fuel, lodging, and per diem expenses.

23. After-hours Overtime Labor BurdenPercentage

    This allowance is typically required for commercial work, hotels, schools, retail, or restaurants, etc. This would apply when work has to be performed after normal business hours, during holidays, weekends, or where workers need to work over a 40-hour work week. Under federal law, employees covered by the Fair Labor Standards Act must be paid time and a half or 1.5 times their regular rate for any hours worked beyond 40 hours in a workweek.

24. Drone & Matterport FeesLump Sum

    Today, digital imagery is a critical component of any restoration job. Documenting the loss before and after demolition are necessary to show what the loss looked like and the progression of restoration through completion. Additionally, for a fee, Matterport scans can be converted into floor plans and sketches for Xactimate, which can save time and money.

25. Security Guard & Alarm SystemsLump Sum

    These costs would apply for high-risk neighborhoods or for buildings that need to be continually monitored or have onsite guard protection.

26. Credit Card or Bank Fees3% – 5%

    When a client chooses to pay with a credit card, the contractor will be faced with a service charge to process the payment. Some property owners prefer this type of payment over checks or bank wire transfers as an added layer of protection against fraud or other financial risks.

If you want to be proficient in your estimating skills, especially when working on large complex losses, you need to think outside the box and include indirect or soft costs that may apply. All too often, restoration estimators overlook costs other than Xactimate’s defaults of 10% for overhead and 10% for profit, which is one reason why so many restoration companies fail.