General conditions are the cost of running a construction site rather than the cost of building anything. Site staff, temporary facilities, cranes, security, cleaning. On a normal project they are between six and twelve percent of the contract, and the boundary between them and the fee is decided by a schedule almost nobody reads line by line.
Three buckets, and the lines between them
Every dollar in a guaranteed maximum price sits in one of three places.
The cost of the work. The trades. Concrete, steel, drywall, mechanical. What most people picture when they think about construction cost.
General conditions. The project specific cost of running the site. Project manager, superintendent, site office, temporary power and water, hoisting, scaffolding, safety, cleaning, dumpsters, small tools, site security, temporary heating and protection.
Fee. The contractor overhead and profit, usually a percentage, covering the home office and the margin.
The boundaries matter because they are not natural. There is no rule of accounting that says a project accountant belongs in general conditions and a regional manager belongs in the fee. Those are conventions, and conventions vary by contractor.
An item that appears in general conditions is paid at cost and is reimbursed. The same item inside the fee is absorbed by the contractor. The same item in both is paid twice, and that is the finding worth looking for.
What general conditions should contain
The useful test is whether the item exists only because this project exists, and whether it scales with the duration of this project.
A superintendent assigned full time to this site passes both tests. A regional safety director who visits monthly passes neither. A project accountant who supports four jobs from the home office passes one.
The typical schedule runs to between forty and eighty lines, and most of them are uncontroversial. The contested ones cluster in five places.
Staff not full time on this project. Percentages of somebody time are legitimate and should be stated as percentages rather than hidden as whole positions.
Home office functions. Accounting, purchasing, human resources, information technology, legal. Almost always fee items.
Insurance and bonding. Frequently a separate line and sometimes duplicated inside the fee percentage.
Small tools and consumables. Often a percentage of labor rather than an actual cost, and the percentage is worth checking.
Equipment owned by the contractor. Charged at internal rates that may exceed what the same equipment costs to rent.
Why the duration question is the expensive one
General conditions are time based. Almost every line in the schedule is a monthly rate multiplied by a number of months.
Which means the single most important number in the whole schedule is the assumed duration, and the second most important is what happens when it changes.
On a twenty two month project with general conditions of $5.4 million, the monthly run rate is roughly $245,000. Every month of delay for which the owner is responsible costs that, before any trade cost or acceleration.
Three provisions decide how much of that reaches the owner. Whether the rate is fixed or actual. Whether it applies to any extension or only to owner caused extension. And whether it is full rate or a reduced rate, since a site in extended finishing works does not need the same complement as one at peak.
A negotiated reduced rate for extension periods, agreed at signature, is one of the most valuable provisions in the whole agreement, and it is nearly always available because the contractor knows the full rate is not genuinely incurred.
This is also why the extension of time analysis matters so much, as set out in answering a delay claim.
A worked example
Illustrative figures. Not taken from any client project and not a quotation.
A 61 million dollar project with general conditions of $5.1 million over 20 months, and a fee of 4 percent.
Reading the schedule line by line produces four findings.
A project executive at 25 percent and a regional safety manager at 15 percent are carried as general conditions, $340,000 over the job. Both are ordinarily fee items under this contractor own published policy.
Small tools and consumables are carried at 3 percent of labor, $210,000. The market range is closer to 1.5 percent and the contractor cannot support the higher figure.
Contractor owned equipment is charged at internal rates roughly 30 percent above local rental rates for the same units, $180,000 over the job.
Extended general conditions are at full rate for any extension, with no reduced rate for the finishing period.
The first three are worth $690,000 and are negotiated at signature in a single meeting. The fourth is worth more than all of them if the project runs late, and costs nothing to fix before the contract is executed.
The double count to look for
The single most valuable check on the general conditions schedule takes about twenty minutes.
Ask the contractor what the fee covers. Most will answer with a list: home office overhead, executive management, corporate functions, profit.
Then read the general conditions schedule against that list. Any item appearing in both is being paid twice, once at cost and once inside the percentage.
This is rarely deliberate. General conditions schedules are built up from templates and carried between projects, and the fee percentage is set by a different part of the business. Nobody reconciles them because nobody is asked to.
The same check applies to insurance. Where a contractor carries a controlled insurance program as a separate line and also applies a fee percentage that its own policy says includes insurance, the overlap is worth establishing.
On most projects this check finds something. On some it finds a great deal, and it is a conversation about a schedule rather than an accusation about anybody conduct.
How general conditions behave on a change order
The second place this schedule matters is every change for the rest of the job.
A change order priced with a full general conditions allocation on top of the trade cost is charging project overhead against work that does not extend the project. A change that adds two days of drywall does not add two months of superintendent.
Three treatments are common. General conditions excluded from change pricing entirely, recovered only through extension of time. A fixed percentage applied to change value. Or actual extended general conditions where the change demonstrably extends the duration.
The first and third are defensible. The second is an arbitrary uplift and it compounds with the fee, which is the mechanism described in the markup charged twice.
On a project with four hundred change orders the difference between these treatments is measured in hundreds of thousands, and it is settled by one sentence agreed before any of those changes exist.
There is a related point about deductive changes. Where general conditions are added to every addition, they should be deducted from every removal, and on most projects they are not. A contract that applies the percentage in one direction only is charging project overhead against work that is leaving the job.
The same symmetry argument applies to the fee, and both are settled in the same sentence.
What we do
We read the general conditions schedule line by line against the fee definition, identify the items that appear in both, check the percentage based lines against market, and negotiate the reduced rate for extension periods. Then we settle how general conditions apply to change orders before there are any. That work is part of the readiness review. After signature, monthly owner cost assurance keeps the same reading running against each payment application.
Questions people ask
What is a normal percentage for general conditions?
Between six and twelve percent of construction cost covers most commercial work, with the range driven by site constraints, duration and building type. A tight urban site with limited laydown runs high for good reasons. The percentage is a sanity check rather than a finding, and the line items are where the money is.
Should general conditions be a lump sum or reimbursable?
A lump sum transfers the efficiency risk to the contractor and removes the monthly reconciliation, which many owners prefer. Reimbursable with a cap is the middle position and the most common. Fully open reimbursable without a cap gives the owner no protection against a schedule that extends for any reason.
Can an owner audit general conditions costs?
Under an open book arrangement with an audit right, yes, and it is worth exercising once at around the halfway point rather than at closeout. An audit at the midpoint can still change behavior for the remaining year. The same audit at completion produces a settlement discussion and nothing else.
This is general information about construction contracts and is not legal advice.