A Contractor’s Guide to Preliminaries in Construction Contracts

Every construction contract includes costs that fall into one of two categories:

Direct Costs – Expenses tied to specific work sections, such as materials and labour.

Indirect Costs – Project-wide expenses that support construction but aren’t linked to specific activities.

Preliminaries, or "prelims," fall into the second category. They cover essential costs such as site setup, project management, compliance, and temporary utilities—critical elements that ensure smooth project execution but aren’t directly part of the build itself.

In this guide, we’ll break down what preliminaries include, their typical cost percentage, and why they matter in project planning.

What Are Preliminaries in Construction?

Preliminaries refer to the indirect costs required to establish, manage, and support a project before and during construction. These costs can be:

• One-off expenses – Such as permits, environmental assessments, and insurance.
• Ongoing expenses – Such as site offices, scaffolding, security, and waste management.

Though they don’t contribute directly to physical construction, preliminaries are essential for keeping a project on schedule, within budget, and compliant with regulations.

Common Preliminary Costs

A construction preliminaries list is often extensive and includes costs for items within every aspect of a project. However, there are some common items that are almost always included.

1. Management and Administrative Costs

These costs cover various operational aspects of a construction project. These costs include payments to project and site managers whose work spans the entire project, rather than being tied to a specific section. They also encompass the costs associated with obtaining necessary permits and approvals, as well as securing insurance policies, such as workers’ compensation or public liability insurance. These expenses are critical for ensuring that the project is managed efficiently, meets legal requirements, and is protected against potential risks.

2. Site Overheads and Temporary Facilities

From access roads and erosion control to site offices, construction projects require several elements that ensure the site is ready and organised for efficient work. Temporary utilities like electricity, water, and internet are essential, alongside other preliminaries such as fencing, waste management, and cleaning. These elements help maintain a functional, safe, and compliant site, ensuring the project can progress smoothly and without delay.

3. Quality Assurance and Compliance

Quality assurance and compliance are crucial preliminaries in construction, ensuring the project meets both safety standards and environmental regulations. This category includes on-site health and safety measures, such as personal protective equipment (PPE), first aid facilities, and environmental management practices like dust or noise control. It also covers preliminary testing to assess the quality and stability of construction materials, such as concrete slump tests for workability and strength, soil compaction tests for foundation stability, and waterproofing tests for roofs and basements. These measures help mitigate risks, ensuring the project meets regulatory standards and is built to last.

4. Mobilisation and Demobilisation

Mobilisation and demobilisation are key components of construction preliminaries, covering the logistical costs involved in setting up and tearing down a worksite. This includes the transport and delivery of site equipment, as well as the setup and removal of temporary structures like site offices and scaffolding. Once the project is completed, it also covers site restoration and cleanup, ensuring the site is returned to its original condition or prepared for its next use. These costs are necessary to ensure a smooth start and finish to the project, with minimal disruption and a clean, safe site.

What Percentage of a Contract Do Preliminaries Represent?

Preliminaries typically account for 5%–15% of total construction costs, based on industry benchmarks. However, this percentage varies depending on factors such as:

• Project Type & Complexity – Large commercial or infrastructure projects often have higher preliminary costs.
• Project Duration – Longer projects require extended site management and temporary facilities.
• Location & Logistics – Remote sites often have higher setup and compliance costs.
• Contract Type – Lump sum vs. cost-plus contracts may allocate different percentages.

Why Are Preliminaries Important?

Preliminaries ensure a project runs smoothly, remains financially transparent, and complies with legal requirements. A well-structured preliminary breakdown benefits stakeholders in several ways:

• Increased Transparency

  Owners get a clearer view of budget allocation beyond direct construction costs.

• Improved Cost Accounting

  Reduces unexpected expenses that could disrupt cash flow or cause delays.

• Better Resource Allocation

  Helps contractors assess where costs are necessary, preventing overspending in non-essential areas.

• Stronger Bid Evaluations

  Developers can compare procurement strategies and contractor bids more effectively.
  

How Preliminaries Are Used in Construction Contracts

Preliminaries play a crucial role in the financial and logistical planning of construction projects. They appear in several key contract documents and project phases, ensuring that indirect costs are accounted for and transparently managed.

• Bills of quantities (BoQ). Used by quantity surveyors and contractors to provide a structured breakdown of all project costs, ensuring transparency in pricing and cost allocation.
• Tender documents. Used by project owners and procurement teams to ensure bidders account for site overheads, management, and compliance costs in their pricing.
• Construction contracts. Included in standard Australian contracts (e.g., AS 4000, AS 2124) to define and formalise general project costs, ensuring all parties agree on financial responsibilities.
• Cost plans and estimates. Used by quantity surveyors during the early planning phase to assess preliminaries, typically estimated at 5–15% of the total project cost.
• Progress claims and payment schedules. Used by contractors to justify staged payments for non-material costs such as site setup, temporary facilities, and project management.

Organising and Structuring Construction Preliminaries

When defining and organising preliminaries in construction contracts, it's common to use the National Building Specification (NBS) numbering system for consistency and clarity. However, contractors may also adapt this system or create their own numbering and text structure to fit the unique needs of their projects. 

For example, in projects like Griffith University, the preliminaries would include a clear breakdown of different stages of the project. A typical construction preliminaries template will categorise key elements such as project location, procurement, management, and completion. These sections help ensure that all aspects of the project, from site setup to final handover, are clearly defined and easily referenced.

Preliminaries are an important part of construction budgeting.

Accurately estimating and managing preliminaries helps contractors avoid budget shortfalls, delays, and compliance risks. By including a detailed breakdown in tenders and contracts, construction teams can ensure financial control, improve cost transparency, and drive better project outcomes.

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