Overhead and Profit
The markup added to direct costs to cover the contractor’s home-office overhead and profit margin — the contractor’s fee.
Definition
Overhead and profit (O&P) is the markup the contractor adds to direct construction costs to cover home-office overhead and the contractor’s profit margin. Home-office overhead includes executive salaries, office rent, BD and marketing, accounting, software, and the cost of running the company itself. Profit is the return the contractor earns on the project for taking on the risk and effort of execution.
O&P is typically expressed as a single percentage applied on top of direct costs, or split as separate overhead and profit percentages.
How overhead and profit is used in estimating
On a typical commercial general contractor, O&P runs 8 to 15 percent of direct cost — perhaps 5 percent overhead and 5 to 10 percent profit. Specialty subcontractors with higher risk and lower volume may carry O&P of 15 to 25 percent or more. Service and emergency-repair work often carries the highest O&P because the volume is low and the risk per job is high.
In estimating, O&P is the last thing applied. The estimator builds up direct cost (material, labor, equipment, subs, general conditions, contingency), and then applies the O&P percentage to arrive at the bid price. On change orders, O&P percentages are usually capped by the contract — a typical clause might allow 15 percent on the contractor’s own work and 10 percent on subcontracted change-order work, with stacked markup explicitly limited.
Typical O&P percentages
Commercial GC, large project: 8 to 12 percent combined O&P. Commercial GC, mid-size project: 10 to 15 percent. Specialty subcontractor: 15 to 25 percent. Service and small-repair work: 25 percent or more. These are starting points — actual percentages depend on volume, risk, competition, and the contractor’s cost structure. Lower O&P on the bid can be a competitive lever, but only when home-office overhead is low enough to support it.
Frequently asked questions
Q.What is a typical O&P percentage?
8 to 15 percent for general contractors on commercial work, 15 to 25 percent or more for specialty subs. Service and small-repair work runs higher. Project size, risk, and competition all influence the rate.
Q.Is O&P included in unit prices?
Often yes — a fully loaded unit price typically includes a pro-rata share of O&P. Some bid forms separate O&P out to its own line so unit prices can be compared cleanly across bidders.
Q.How is O&P applied on change orders?
At a contract-defined percentage, typically 10 to 15 percent on the contractor’s own work and an additional 5 to 10 percent on subcontracted changes. The contract often caps stacked markup to prevent excessive change-order pricing.
Q.Are general conditions part of O&P?
No. General conditions are project-specific overhead and are budgeted as direct cost. O&P is home-office overhead and profit, applied as a markup on top of direct cost (including GC).
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