Overhead and Profit (Markup)
The percentage a contractor adds on top of its raw project costs, labor, material, and subcontractor costs, to cover its own home office expenses and generate profit, built into an estimate as its own line rather than buried inside other costs.
Why it matters
This is a different idea from [[concept-overhead-and-profit-claims|Overhead and Profit Claims]], which is the insurance-restoration side of the same two words, covering what a policy pays a contractor for managing a repair. This concept is the everyday estimating sense: the markup every contractor applies on every job to stay in business, regardless of insurance.
On a real project
A general contractor's raw costs for a project total four million dollars. Rather than bidding exactly that number, the estimator adds eight percent for company overhead, rent, office staff, insurance, and equipment the company owns outright, plus another five percent for profit, arriving at a final bid price above the raw cost total.
Who this matters most to
An Estimator calculates overhead and profit markup on every bid. A Project Manager has to protect that margin once the job is underway, since change orders and buyout savings or losses all affect whether the markup built into the bid actually survives to the end of the job.
Where this goes wrong
A contractor bidding competitively shaves its overhead and profit markup down to almost nothing to win a project, then discovers mid-project that the thin margin leaves no room to absorb a single unexpected cost. A problem that would have been a minor dent in a normal markup instead wipes out the job's entire profit.