What is Contractor Overhead and Profit on an Insurance Claim?
Updated: Mar 17
WHAT IS IT?
Overhead and Profit are two different types of costs but they’re typically paired under the label O&P and stated as two separate numbers. Overhead costs are operating expenses for equipment and facilities. Profit is what allows a general contractor to earn a living.
WHEN SHOULD YOU GET O&P?
As a general contractor, you are owed general contractor’s Overhead and Profit (O&P) on all claims that a carrier determines a general contractor will likely be needed to complete the job.
That means, if it is reasonably expected that the homeowner will use a general contractor for the project, then O&P should be included on the scope of loss. It is usually estimated at 20 percent of the total amount of the contractor's estimate (10% to cover profit and 10% to cover overhead).
The insurance companies already know this but have become experts at getting out of paying it. You are probably already familiar with some of the excuses given by the carriers, the job is not complex enough, there are not enough trades to consider O&P, we do not consider the roof a trade, we need subcontractor invoices, etc. There are ways to present your O&P case, but you may need help from your homeowners.
HOW TO TALK TO ADJUSTERS AND HOMEOWNERS ABOUT O&P
You need to be comfortable talking to both your homeowner and the adjuster about why you are charging this fee.
Very simply put: “This fee is placed on our estimate to help us stay in business. It covers office fees, travel fees, training, supervising and scheduling....it basically covers all of the items that you do not see listed on our Xactimate but that we still do on each and every job.”
You can use obtaining a permit as an example, “You don't see a line item for it on our scope, but someone from our office fills out the permit, emails or drives it in, posts it on the job site, and calls in for inspections- we should be compensated for this. Another great example is job supervision.
WHEN SHOULD YOU FIRST BRING UP O&P?
Bring it up on your first meeting with the adjuster. When Elite is discussing the O&P after work is completed, most desk adjusters will look through the field adjusters notes to see if O&P was discussed during your adjuster meeting. We will have a higher success rate if you talk to the adjuster in the field and explain up front that you are a general contractor, you will be coordinating all of the repairs and therefore will be expecting O&P.
The carrier usually will not pay it upfront, but if you had this conversation on-site then we have set our expectations upfront and we have a better chance getting it on the back end!