What Is Overhead and Profit (OH&P)?
By Wyatt Cooper · Published · 2 min read
Key takeaways
- Overhead is the cost of running the company that no single job item carries; profit is what is left for the contractor.
- General conditions are the job site's own running costs, priced separately from home-office overhead.
- 10% overhead then 5% profit on the running total is not the same as 15% on cost, so the contract should say how OH&P is applied.
Overhead and profit (OH&P) is the markup a contractor adds to the direct cost of work. Overhead covers the costs of running the business that no single job item carries, such as the office, estimators and insurance; profit is what the contractor keeps. Each contract sets its percentages on cost, such as 10% overhead and 5% profit.
Overhead, profit and general conditions
A HUD development budget guide draws the lines cleanly: "Contractor overhead includes the cost of the contractor's central office operations. Contractor profit represents the fee the contractor receives in excess of its costs. General conditions include the cost of the contractor's construction site office operations (e.g., construction trailer, construction superintendent)" (HUD). In federal cost terms, overhead is an indirect cost, "not directly identified with a single final cost objective" (FAR 2.101). See what general conditions are for the site side.
Example: two ways to apply 15%
Sequential vs. combined markup
- Direct cost
- $50,000
- Overhead 10%
- $5,000, for $55,000
- Profit 5% on $55,000
- $2,750, for $57,750
- Combined 15% on $50,000
- $7,500, for $57,500
- Difference
- $250
Both are common; the contract or the change-order clause should say which. Markup percentages are on cost, which is not the same as margin on price: see markup vs. margin. For OH&P on change orders, with tiers for subs, see how to price a change order and the change order pricing calculator.
The bottom line
OH&P is the markup on direct cost that pays for the company and leaves a profit; general conditions pay for the site.
Agree the rates and how they stack before work starts, especially for change orders. Join the waitlist to try Conflo.
Sources
- Appendix 3: Sources and Uses Budget Instructions and Definitions — U.S. Department of Housing and Urban Development. Read October 22, 2026.
- FAR 2.101, Definitions (indirect cost, direct cost) — Acquisition.gov, U.S. General Services Administration. Read October 22, 2026.
Questions
What is a typical OH&P on a change order?
Contracts set it, often as separate percentages for the contractor's own work and for work by its subcontractors. Read the changes clause before pricing; there is no single standard rate.
Is a GC's fee the same as OH&P?
Close. On cost-plus and GMP work the fee usually covers home-office overhead and profit together, while general conditions are reimbursed as cost or as a separate fixed amount.
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