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Direct costs are expenses that can be directly attributed to a specific project or activity. This includes costs such as materials, labor, and any other expenses that can be directly linked to the production of goods or services. In the context of a tender, understanding direct costs is essential for accurately preparing a budget and ensuring that the pricing reflects the true cost of the project. This clarity allows stakeholders to see the specific financial resources required to execute the work.

On the other hand, indirect costs encompass those expenses that cannot be directly linked to a particular project. These might include general administrative costs, utilities, or rent—expenses that support the overall operation but are not tied to any singular project. Such costs often require allocation methods to estimate their share for a specific project.

Therefore, the distinction between these two types of costs is critical during the tendering process, where your bid needs to reflect accurate pricing to ensure the viability and competitiveness of the proposal. Understanding that direct costs can be attributed specifically to the project allows tender creators to compile a detailed and specific budget that aligns with project execution needs.