How Much Overhead and Profit Should a GC Carry?

Overhead and profit (OH&P, or fee) is what the GC adds on top of the job's cost. GSA's estimating policy separates the parts: field requirements (the job's own site costs), then "The portion of the contractor’s home office costs and corporate overhead allocated to the construction contract", then "Any fee or profit mark-up applied by the prime contractor as compensation for undertaking the work" (GSA P-120).

The job's own site costs belong in general conditions, priced from the schedule; see how to price general conditions. What is left for overhead is the cost of running the company: the office, estimators and executives not assigned to one job, accounting, IT, company insurance and the cost of chasing work you do not win.

1. Budget next year's home-office overhead from your books: everything not charged to a job.
2. Forecast next year's revenue from backlog and the work you expect to win, honestly.
3. Overhead rate = overhead ÷ revenue.
4. Choose the profit you want as a share of revenue.
5. Target margin = overhead rate + profit. This is the share of each bid's price you must keep.
6. Markup on cost = margin ÷ (1 − margin). Apply it to the job's cost: direct cost, general conditions and contingency.
7. Adjust per job: up for risk, a tight schedule or a difficult owner; down for a large job, a repeat client or work you need to keep crews busy.
8. Track it: compare the overhead you really spent and the volume you really billed each quarter, and reset the rate when either moves.

The federal cost principles say the same about any allocation rate: the method "may require revision when there is a significant change in … the volume of sales and production" (FAR 31.203(e)). A rate built on volume you are not going to bill underprices every job.

The company is fictional: a regional GC expecting $24,000,000 of revenue next year, with $1,320,000 of home-office overhead, and a target of 3% profit. It is bidding a job whose cost (direct cost, general conditions and contingency) is $5,000,000.

If revenue comes in at $20,000,000 instead, the same overhead is $1,320,000 ÷ $20,000,000 = 6.6% of revenue. Keeping 3% profit then needs a 9.6% margin, which is a 0.096 ÷ 0.904 = 10.62% markup, or $531,000 on the same $5,000,000 job. Bid at 9.29% in a slow year and the company quietly earns 1.9% instead of 3% (8.5% kept − 6.6% overhead, before any job loses money).

Why divide by price and not cost: overhead and profit are measured against revenue, so the target is a margin, and the markup that delivers it is always larger. The conversion table and more examples are in markup vs margin.

• Applying the target margin as a markup: 8.5% on cost keeps only 7.83% of price (0.085 ÷ 1.085).
• Copying a percentage from another company whose overhead and volume are not yours.
• Putting job-site staff in overhead and also in general conditions.
• Building the rate on a revenue forecast that includes work you have not won.
• Cutting fee to win a job without saying which cost you expect to beat.

On a cost-plus or GMP contract, the owner contract defines the fee and what it is charged on; see what a GMP contract is. The whole bid, from sub bids to markups, is in how to build an estimate from sub bids, and the rest of the GC's path in the general contractor's guide.

In Conflo's Estimate, markups are a stack applied in the order you set: contingency, insurance, bond, fee, tax, escalation or other. Each is charged on everything above it, on direct cost plus general conditions only, on the material lines only (for sales tax), as a fixed amount, or on the final price including itself (for insurance and bonds).

The fee line shows the fee in dollars and as a percent of the price, against a margin target you set on the fee, and says so when the fee is below target. The estimate is visible only to the general contractor.

Your overhead and profit is a number you calculate, not one you look up: next year's overhead over next year's volume, plus the profit you want, turned into a markup that keeps that margin.

Recheck it every quarter. When volume drops, the same overhead needs a higher markup, and a bid priced on last year's rate quietly gives profit away.

Join the Conflo waitlist

1. P-120, Public Buildings Service Cost and Schedule Management Policy Requirements (PBS 1000.6B, November 7, 2022), General Conditions and Profit — U.S. General Services Administration (via WBDG). Read October 22, 2026.
2. FAR 31.203, Indirect costs — Acquisition.gov, U.S. General Services Administration. Read October 22, 2026.