OHP in construction means Overhead and Profit. It is the amount a contractor adds on top of direct costs (labor, materials, equipment, and subcontractors) to run the business and earn a return. Overhead covers things like office staff, insurance, and site supervision. Profit is what the company keeps after paying all bills. Most estimates show it as a percentage of direct cost, such as 10% overhead plus 10% profit. You’ll also see it written as O&P, OH&P, or simply “markup.” You will find OHP written on bids, change orders, insurance repair estimates, and bills of quantities. It looks small on paper, but it decides whether a job makes money or quietly loses it. Set overhead and profit (OHP) too low, and you lose money on jobs you win. Set it too high, and you stop winning.
If your bids keep landing too high or too thin, working with a top construction estimating company gives you accurate direct costs to build your markup on.
What Does OHP Stand for on a Construction Estimate?
OHP stands for Overhead and Profit on a construction estimate. It has two separate parts:
- Overhead: the cost of keeping the company and the job running. None of it ends up inside the finished building.
- Profit: the contractor’s reward for taking on risk, managing the work, and putting their name on it.
Both parts are added together on most estimates, but you should always price them separately. It is the same thing as OH&P and O&P. UK suppliers and quantity surveyors often say “Overheads and Profit”, as Travis Perkins explains in its guide to construction margins.
One point confuses people. Some general glossaries list OHP only as “overhead projector”. That meaning has nothing to do with a cost document. On an estimate, a quote, or a BOQ, OHP is always overhead and profitable.
| Term you see | Where it shows up | What it means |
| OHP | UK and international estimates, BOQs | Overhead and Profit |
| OH&P | US bids, change order forms | Overhead and Profit |
| O&P | Insurance and restoration estimates | Overhead and Profit |
| “10 and 10” | Adjuster and contractor talk | 10% overhead + 10% profit |
| GCOP | Insurance claims | General contractor’s overhead and profit |
What Costs are Included in Overhead?
Overhead includes every cost that supports the work but never becomes part of the structure. It falls into two buckets.
| Type | What it covers | Examples |
| Home office overhead (G&A) | Running the business, not tied to one project | Office rent, accounting, estimator and admin salaries, software, licenses, business insurance, marketing |
| Job-site overhead (general conditions) | Costs of one project that don’t end up in the building | Superintendent, site trailer, temporary power and water, portable toilets, dumpsters, permits, fencing |
This split matters more than most people think. A J.S. Held guide on O&P explains that for general contractors and construction managers, “overhead” usually refers to field costs, while the fee or profit line also has to carry part of the head office costs. So when a bid lists general conditions as its own line, the OHP percentage on top should be smaller.
The split also matters because of double counting. If you price the site supervisor in general conditions and also count his wage in your overhead rate, the owner pays for him twice. Your bid loses.
Jobsite overhead depends on the schedule. A 10-month job needs 10 months of trailer rent and supervision, not a flat guess. Many contractors outsource this to a cost estimation firm so supervision weeks, temporary facilities, and cleanup get counted from the actual timeline.
In practice, home office overhead is the number most small contractors get wrong. They forget their own salary, their truck, or the estimator’s time on bids they lost. Those costs are real, and only winning jobs can pay them.
What Is Not Overhead?
- Contingency: This is a separate allowance for unknowns. Burying it inside profit hides real risk from the owner.
- Bonds and project insurance: Many contractors bill these as their own lines. Check the bid so they aren’t counted twice.
How Much Profit Do Construction Companies Actually Make?
Construction profit is thin. NYU Stern’s January 2026 margin data shows US engineering and construction firms earning a 5.94% net margin on a 15.46% gross margin. Homebuilders in the same dataset net 9.47%.
So a “10% profit” line on your bid does not land as 10% in the bank. Taxes, interest on loans, late payments, warranty callbacks, and rework all come out of it first.
Profit pays for the risks no estimate fully covers:
- Material prices that jump after you sign
- Weather and permit delays
- Hidden site conditions, like rock or old pipes
- Money held back as retainage until closeout
- Cash to buy equipment and grow
That is why profit should change with risk. A clean repeat job for a good client needs less than a rushed job with unclear drawings.
How Do You Calculate OHP in Construction?
You calculate overhead and profit (OHP) in construction by finding your real overhead rate, choosing a profit rate, and adding both to the job’s direct cost. Here is the full process with real numbers.
Step 1: Total your yearly home office overhead. You can use last year’s books. For example, it comes to $300,000.
Step 2: Total your yearly direct job costs. Labor, materials, equipment, and subs across all jobs. Say your direct cost is $2,500,000.
Step 3: Divide your yearly home office overhead by your yearly direct cost to get an overhead rate such as $300,000 ÷ $2,500,000 = 12% overhead rate. Because you divided by direct cost, you can apply 12% straight to any job’s direct cost.
Step 4: Pick a profit rate for this job. Say you select 8% profit, based on the risk of the job.
Step 5: Apply the profit. For a job with $80,000 in direct costs, you can use the two methods given below.
- Flat Method: Price = Direct cost × (1 + overhead %)
- Compounded Method: Price = Direct cost × (1 + overhead %) × (1 + profit %).
| Method | Math | Selling price |
| Flat (added together) | $80,000 × 1.20 | $96,000 |
| Compounded (profit on cost + overhead) | $80,000 × 1.12 × 1.08 | $96,768 |
Compounding earns $768 more on this job because profit is charged on overhead too. Both are common. Pick one and use it every time, and say which one your contract allows on changes.
Is a 20% Markup the Same as a 20% Margin?
No. A 20% markup gives you only a 16.7% margin. On the job above, $16,000 of OHP divided by the $96,000 price is 16.7%.
If you need a true 20% margin, divide instead of multiply:
- Price = Direct cost ÷ (1 − target margin)
- $80,000 ÷ 0.80 = $100,000
This one mix-up quietly costs contractors 3 to 4 points on every job.
Why Do Quantities Matter So Much?
OHP is a multiplier, so it multiplies mistakes too. A $5,000 quantity error becomes a $6,000 price error after a 20% markup. The math behind OHP in construction is easy; the inputs are where it breaks. This is why many contractors use construction takeoff services to lock down quantities before any percentage goes on.
What Is a Reasonable OHP Percentage on a Construction Job?
Reasonable OHP is your real overhead rate plus a profit that matches the job’s risk. There is no single correct number. The most common benchmark is “10 and 10”: 10% overhead plus 10% profit, or 20% total. Insurance adjusters use it as a default, and United Policyholders notes that claims also see 5/10, 10/15, and even 20/20 on hard jobs.
Bid work is different. Your overhead percentage should come from your own books (Step 3 above), not from a rule of thumb. No single rate fits every job, and anyone quoting one fixed number for OHP in construction is skipping the math.
What Pushes OHP Up:
- Small jobs, where fixed office costs spread over less work
- High risk, tight schedules, or unclear drawings
- Remodeling and occupied-building work
- Mostly self-performed labor
What Pushes OHP Down:
- Large, simple, repeatable projects
- Heavy competition on hard-bid public work
- Mostly subcontracted scope
- General conditions already priced as their own line
Red flags for owners: markup applied twice on the same costs, large general conditions plus a high OHP percentage, and change orders with no cost breakdown. If you see any of these, ask for a line-by-line explanation of how OHP in construction was applied to your bid.
Where Is OHP in Construction Used?
OHP appears anywhere a cost has to be turned into a price: bids, change orders, insurance claims, cost-plus contracts, UK dayworks, and delay claims.
How Is OHP Used in Bids and Estimates?
In a bid, OHP is the final step after quantities are measured and priced. The estimator counts materials, prices labor and equipment, adds sub quotes, and then applies the markup. Some contractors show it as one line. Others bury it inside unit rates so the client sees one price per item. Either way, the bid total has to cover it, or the job runs at a loss from day one.
Because OHP is a percentage, any error in the quantities underneath gets multiplied. Miss 2,000 square feet of drywall and you also lose the overhead and profit that should have ridden on it. Contractors without an in-house estimator often use construction takeoff services so the quantities are right before any markup goes on.
How Does OHP Work on Change Orders?
Change orders carry their own OHP, and most contracts fix the allowed percentage in advance. Many agreements set one rate for work the general contractor does itself and a lower rate for work done by its subcontractors.
Watch for stacking. A sub adds its own markup, and then the GC adds markup on the sub’s total. That’s normal, but the contract should say how many tiers can charge it. Read this clause before you sign, not after the first change.
Do Insurance Claims Pay OHP?
Yes, when the repair needs a general contractor to coordinate the work. Insurance estimates usually use the 10% overhead and 10% profit convention.
Many adjusters follow an informal “three-trade rule.” If a repair needs three or more trades, for example, roofing, drywall, and painting, GC coordination is treated as reasonable, and O&P is included. This rule of thumb isn’t written into most policies. If your multi-trade claim leaves out O&P, ask the adjuster in writing to explain why.
How is OHP Handled in Cost-Plus Contracts?
In a cost-plus contract, the owner pays the actual cost of the work plus an agreed fee that covers overhead and profit. The fee can be a percentage or a fixed amount.
A fixed fee gives the contractor no reason to let costs grow. A percentage fee is simpler but rises with every dollar spent. Owners who choose a percentage often add a guaranteed maximum price (GMP) and audit rights to keep it honest.
What Does OHP Mean in UK Contracts?
In the UK, OHP is the standard quantity surveying shorthand for “overheads and profit.” Under JCT contracts, dayworks are priced at prime cost plus percentage additions for incidental costs, overheads, and profit. NEC contracts use a “fee percentage” that does the same job.
In a bill of quantities, contractors either spread OHP across their item rates or show it as one adjustment near the end of the tender.
Can Contractors Claim OHP for Project Delays?
Yes. When the owner causes a delay, the contractor’s head office keeps costing money even though no new revenue is coming in from that job.
On US federal projects, contractors often use the Eichleay formula to calculate this “unabsorbed home office overhead.” It splits total company overhead by the delayed job’s share of billings, then multiplies a daily rate by the days of delay.
What Mistakes Do Contractors Make with OHP?
The biggest mistake is using a borrowed percentage instead of your own numbers. Here are the most common ones:
- Copying “10 and 10” without checking real overhead.
- Confusing markup with margin, which shaves profit off every job.
- Using different bases, figuring the rate on revenue but applying it to cost.
- Forgetting markup on extras and small field changes.
- Hiding contingency inside profit, then spending it on surprises.
- Never updating the rate, even as wages, fuel, and premiums rise each year.
Final Word
OHP in construction is the markup that turns a cost estimate into a real price. Overhead keeps the office and job site running, and profit pays you for the risk you carry. Know your real overhead rate, price profit to match the risk, and keep markup and margin straight. Apply the same logic to change orders, insurance claims, cost-plus fees, and delay claims.
Your next step is to pull last year’s books and divide total overhead by total direct costs. Then compare that number to the overhead percentage on your last three bids. If the bids are lower, you’ve been paying part of your overhead out of your own profit, so raise the rate on your next estimate.
