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CHAPTER 1
What Are Soft Costs
and Why Do They Matter?
The price tag of a new urban fixed guideway transit line is one of the most visible and critical
pieces of information in the public deliberation over whether to build the project. The project's cost
factors prominently in deciding mode and alignment during the project's alternatives analysis (AA)
and preliminary engineering (PE) phases, is repeated in the media, is debated by the stakeholders,
and is a crucial input to the "cost-effectiveness" evaluation that forms the basis for the project's
eligibility and recommendation for federal funds.
But what do these cost estimates really consist of? Most professionals are familiar with the
"hard costs" of transit capital construction such as steel, concrete, rail cars and buses, or construc-
tion labor. But what about costs for designing the project, obtaining permits, and managing the
construction project? What about the cost of settling a real estate legal issue or testing a mechanical
system before the project opens? These are included in the category called professional services
or "soft costs" and have ranged from as low as 11% to as high as 54% of hard costs. On average,
soft costs for federally funded transit projects account for about a 30% additional cost above hard
costs--a significant part of the ever-important estimate of total project cost.
Despite the importance and magnitude of professional services or soft costs, project managers
may not always understand precisely why soft costs' percentage of total project cost can span such
a broad range, how to best estimate them early in project development, or even what types of soft
costs there are. Furthermore, transit agencies may face tough public scrutiny over the accuracy
and consistency of their cost estimates, scrutiny that is driven by perceptions that transit project
capital costs have been underestimated in the past. Finally, while a great deal of research has targeted
hard cost estimation techniques, very little literature exists on the composition and estimation
of soft costs for transit projects.
This Guidebook is designed to help fill that gap. It is intended to help transportation project
sponsors better understand and estimate soft costs, especially during the initial phases of devel-
oping a rail project.
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