Investigating the overhead costs in construction projects in Palestine

Abstract

PurposeThis paper aims to investigate the overhead costs of construction contractors at the Gaza Strip, Palestine, specifically the level of contractors' awareness of the concept of overhead cost, their perception of main components of overhead cost, percentage of overhead to total project cost, method used to manage and control overhead cost, and reasons for increasing overhead cost.Design/methodology/approachIn the research 40 contractors classified under the Palestinian Contractors Union (PCU) and United Nation Relief Works Agency (UNRWA) list were surveyed.FindingsThe findings indicate that the majority of contractors are aware of overhead costs in construction projects. The staff wages are the highest overhead costs component. The currency exchange rates, inflation, increase in financial costs among others lead to increase in overhead costs. The findings illustrate that the overhead costs are on average 11.1 percent of the total project cost. Controlling and managing overhead costs are considered the main tools to improve the companies' financial situation.Practical implicationsThe trend in most companies is to adopt techniques to manage and control their cost components. Using activity based costing (ABCs) is one of the main techniques which the companies should take into consideration. The contractors' knowledge and awareness of the research finding will increase their chances of winning bids within an acceptable profit margin. Applied training courses are recommended for contractors to improve their awareness regarding the importance of overhead costs.Originality/valueThis study will extend contractors' awareness and knowledge through guidance on how to gear their financial resources carefully, and how to bid correctly in order to remain competitive in the market place.