General Contractor's Overhead, Profit and General Conditions? What's It Worth? by Corinne Maddox, CCM, CFM

One of the pitfalls of Cost-Plus construction contracts is poor definition of overhead, profit and general conditions costs. In this delivery method, the owner pays actual Cost of the Work for subcontracts, labor, and materials (including transportation, taxes and trade discounts, usually), plus a percentage or fixed price for miscellaneous direct and indirect project costs broken down as overhead, profit and general conditions. If not defined, an owner may wind up paying for many direct and indirect costs as Cost of the Work when they should be part of the percentage or fixed price, essentially paying twice. Profit is usually pure profit - usually 2-5% of all other costs. Overhead is usually 5-15% of Cost of the Work, and covers items such as home office and project staff, home office rent and expenses, employee benefits, bonds, and insurance. General Conditions may be billed as part of the Cost of the Work, part of Overhead or may be included in the contract as a separate allowance or percentage. It covers miscellaneous non-staffing costs directly related to the project, such as job trailer and utilities, permit fees, temporary utilities, permanent utility connection fees, barriers, scaffolding, equipment rental, cleaning and dumpster. Carefully defining each category prior to bidding or prior to finalizing the terms of the contract can reduce costs and avoids misunderstandings and claims with the General Contractor.