Studio Ideas: Prelims and OHP
What are prelims and OHP?
When we send a project budget to our clients, we are sometimes asked to explain exactly what prelims (preliminaries) and OHP (Overheads and Profits) are. We often find that some contractors don't charge for either of these items.
This journal sets out to explain exactly what they are, how they are calculated and why all contractors charge them – whether it is transparent or not.
Reflection House: New Build
Prelims
Prelims are the cost of the site-specific overheads of any given project. They are the costs that are directly related to the running of the project that are not accounted for under labour or material. This may include such things as;
- Welfare provision for on-site staff.
- All Health & Safety equipment required on site and utilities as well as scaffolding.
- Skips and end of project cleaning.
- Some personnel costs are also usually included under prelims.
For example, if a Project Manager will be devoting one day per week looking after a project, then this cost would be accounted for in the prelims.
Reflection House: New Build
The "overheads" part of OHP does not (somewhat confusingly) relate to site overheads – it is different to prelims. It refers to the general overheads and costs of running the company. These costs include office expenses, accounting, legal expenses, licenses, taxes and premises etc.
There are no independently audited figures for what contractor overheads are in the UK that we can find, but we work hard with our Contractors to make sure that they are competitive within the industry. Ways to keep overheads lean, is through the use of effective technology that helps manage business efficiently.
The "profits" part of OHP is self-explanatory. Every business must make a profit or it will disappear. It needs a reasonable profit to build and maintain trading, keep it viable in the down times and ensure its longevity. If it can't cover its expenses, overheads and make a reasonable profit, it might not even be in business long enough to finish your project!
In summary OHP is the money needed to make sure a Contractor can complete the job, pay its bills and make a profit – just like any other business. Hopefully this explains why every contractor includes OHP somewhere in their costs, whether they disclose or not. We would question any Contractor's ability to deliver any quality product if they are unable to cover their costs and make a profit. We like to be transparent with our budget strategy and our Contractor's pricing because it sets the tone for the kind of open and collaborative relationships that we want to build with our clients.
If you have a project that you would like to discuss with us in the studio, please contact us on 02082916947.
Renovation and Extension