Overhead and profit
Overhead and profit is the markup a contractor adds to its direct costs to cover the expense of running the business and to earn a return on the work.
Also written as O&P, overhead & profit.
Last updated
Reviewed by Eric Collin · President and Founder of Firmo Construction, 20+ years in preconstruction and bid evaluation
Overhead splits in two. Job overhead is the cost of running this particular project and generally appears as general conditions. Home office overhead is the cost of existing at all — rent, accounting, estimating salaries, insurance, vehicles — and it is recovered as a percentage spread across every job the company bids.
Profit is what remains, and it is the smallest number in the conversation. Single-digit net margins are ordinary in general contracting, which is why an error that looks minor against the contract value can consume the entire return on a job.
In bid comparison, O&P is usually invisible and occasionally itemized. When a proposal breaks it out, the percentage is worth reading but not worth optimizing against: a bidder showing lower O&P may simply have loaded more into direct costs, and the total is what gets paid either way.
It matters most for change orders, where the contract typically caps the markup allowed on added work. That cap is negotiated at award and applied for the life of the job, so a percentage agreed casually during buyout governs every change that follows.
- Markup
Markup is the amount added to a direct cost to arrive at a selling price, expressed as a percentage of that cost.
- General conditions
General conditions are the project-specific costs of running a job that belong to no trade — supervision, the site office, temporary utilities, cleanup, and similar.
- Change order
A change order is a written amendment to a contract that adds, removes, or modifies work, adjusting the contract price and schedule accordingly.
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