SHOP, YARD, AND WAREHOUSE OVERHEAD, HOW TO ALLOCATE IT CORRECTLY.
Every subcontractor with a yard, shop, or warehouse carries a fixed cost infrastructure that most contractors only partially account for in the overhead rate. The lease is usually in there. The yard manager's salary is often missing. Fueling infrastructure, forklift maintenance, and security systems usually sit in an ambiguous general expense category that neither fully captures them nor allocates them correctly. The result is an overhead rate that understates the real cost of the yard operation by $20,000 to $60,000 a year.
The fix is an annual shop and yard overhead inventory that accounts for every cost and allocates each one correctly: fixed costs to overhead, project-specific costs to direct job cost.
THE FIXED COSTS THAT LIVE IN THE YARD, AND HOW THEY BELONG IN THE BID.
What Shop, Yard, and Warehouse Overhead Includes
Yard or shop lease or ownership costs. Storage fees for materials and equipment. Shop foreman or yard manager salary. Small tools storage, maintenance, and replacement. Shop utilities, electricity, water, compressed air. Fueling infrastructure, diesel tank, dispensing pump, installation cost amortized. Security systems. Vehicle storage and wash bay operations. Laydown yard equipment, forklifts, pallet jacks, storage racks. At a $4M subcontractor, shop and yard overhead commonly runs $60,000 to $120,000 a year, all of which is a fixed cost of doing business that belongs in the overhead rate.
Understated Shop Costs vs Untracked Project-Specific Costs
There are two common errors. First, shop costs are in overhead but not fully calculated: the lease is there, the utilities are there, but the shop foreman's salary is missing, or equipment storage and maintenance costs aren't allocated. The overhead rate understates the real cost of the shop operation. Second, project-specific yard costs, materials stored for a specific project, a temporary laydown area for one job, are sitting in general overhead when they should be in direct job cost. The overhead rate is overstated and the job cost is understated.
What Goes to Overhead and What Goes to Jobs
Ongoing shop and yard fixed costs, lease, utilities, permanent staff, general equipment maintenance, belong in overhead, allocated across all projects proportionally. Project-specific yard costs, materials staged for a specific project, temporary storage containers on site, dedicated yard space for one customer's material, belong in direct job cost for that project. The line between the two requires a judgment call at the start of each project. Making the call explicitly is better than letting it default to overhead.
THE CALCULATION THAT CAPTURES EVERY YARD AND SHOP COST.
The equipment connection: the shop and yard overhead calculation often reveals equipment ownership costs that weren't fully captured in the fleet burden analysis. When both are done simultaneously, the overhead rate update is comprehensive: fleet burden, shop overhead, indirect labor, and owner salary all corrected in one calculation.
