Executive Summary
General Contractor (GC) overhead and profit (O&P) represents the real cost of project coordination and risk management in property repairs – not a bonus or windfall for contractors. Paying O&P is fundamental to true indemnification: it funds the supervisory services and business expenses needed to fully restore a damaged property.
Traditionally set at 20% (10% overhead + 10% profit), this markup should be included whenever a claim involves multiple trades or complexity requiring coordination, regardless of whether a "licensed GC" is formally hired.
Why O&P Should Be Paid on All Multi-Trade or Complex Claims
Insurance policies promise to cover the full cost to repair or replace covered damage – which by definition includes the cost of managing that repair. Whenever a loss involves multiple specialized trades or complex scheduling, a general contractor's coordination is reasonably likely to be needed, and O&P belongs in the claim from the start.
O&P is Part of the True Cost of Repair (Indemnity Principle)
Overhead and profit exist in property estimates because complex repairs require professional coordination. A homeowner's repair might involve carpenters, plumbers, electricians, painters, roofers, etc., and without someone orchestrating the job – pulling permits, scheduling subs, ensuring quality and safety – the project can fall into disarray or danger.
O&P is the mechanism to pay for "someone in charge." It covers the GC's indirect business expenses and a fair margin for taking on the project's execution risk. If an insurer refuses to cover O&P when oversight is needed, they effectively expect the insured or subcontractors to absorb those duties for free.
Courts and Regulators Insist on O&P When Likely Needed
The majority rule in U.S. courts is that if the use of a general contractor is reasonably likely to be required by the scope of loss, then GC overhead and profit must be included in loss payments – even if the insured hasn't hired a contractor or ends up doing some work themselves.
Key cases across multiple states:
- Gilderman (PA) - Established that O&P must be included when GC involvement is reasonably likely
- Salesin (MI) - Held that ACV includes all reasonable repair costs including O&P
- Tritschler (AZ) - Rejected insurer arguments that O&P can be withheld until incurred
- Ghoman (TX) - Emphasized indemnity includes contractor coordination costs
Regulators agree: the Texas Department of Insurance issued bulletins in 1998 declaring that withholding prospective O&P in ACV calculations is "improper…and unfair to insureds."
Insurers Price Premiums With O&P in Mind
It would be inequitable for insurers to charge premiums that factor in general contractor costs, then refuse to pay those costs after a loss. Replacement cost policy limits and rates are commonly calculated using building-cost data (Marshall & Swift, etc.) that include contractor overhead and profit as components.
As the Texas DOI noted, if the insurer excludes costs in claims that were included in setting the insured's coverage limit (and premium), the carrier obtains an "illegal windfall". In practice, policyholders have already paid for O&P through their premiums.
The "Three-Trade Rule" Has No Contractual or Legal Basis
Many carriers use a shorthand "three trades" rule – only paying O&P if three or more different trades are involved in a repair. This rule of thumb is not found in any standard policy language and has been widely criticized as arbitrary.
A complex two-trade job (e.g. major plumbing and electrical work) might absolutely require GC coordination, whereas three simple trades might not. Insurers cannot unilaterally impose a "three trades" prerequisite that isn't in the contract.
The bottom line: Scope complexity, not an arbitrary number of trades, determines the need for a GC.
O&P is Not "Already Included" in Unit Prices
A common adjuster objection is "our pricing already has overhead and profit built-in." This is misinformation when it comes to general contractor O&P. Estimating tools like Xactimate explicitly exclude a general contractor's overhead and profit from individual line items.
Each line item in Xactimate or similar systems only includes the costs for the specific trade performing that task (materials, labor, a modest labor burden and the trade contractor's own small profit). They do not include the cost of overall project management or multi-trade supervision.
Xactware's own white papers break overhead into categories – "job-related overhead" which should be added as line items, and "general overhead & profit" which is added at the end as a percentage for the GC.
Beyond the Licensed GC: Paying for Coordination Services
A crucial reframing is to stop thinking of O&P as tied to a particular license or title (General Contractor) and start recognizing it as compensation for coordination and management work.
Any Party Doing a GC's Job Deserves the Same Pay
If a homeowner, mitigation contractor, or other party ends up handling the scheduling of trades, arranging permits, overseeing quality, or otherwise managing the project, they are in effect performing the general contractor's function. The claim should fund that function.
Even when an insured undertakes repairs themselves, they "effectively became the general contractor" and should be compensated for that coordination effort to be made whole.
License and Terminology Technicalities
Some insurers try to dodge O&P by hair-splitting definitions – e.g. "contractor's O&P" only refers to a subcontractor's overhead already in the line items, and not a "general" contractor. This is a semantic trap.
Texas regulators addressed this, rejecting an insurer's argument that O&P could be withheld by redefining it – the Texas Department of Insurance clarified it is an unfair practice to distinguish "general contractor's" O&P from "contractor's" O&P in order to avoid paying.
The focus should be on the services provided, not the exact title of the provider.
Managed Repair and Vendor Networks
In cases where insurers steer policyholders to preferred vendors or a managed repair program, coordination costs are often hidden but still present. The contractor might not separately itemize "O&P" to the homeowner, but the insurer is paying the vendor to manage the job (the cost is just baked into the program's rates).
Therefore, on a cash-out or independent repair, the insurer should likewise include equivalent O&P – they cannot say "if you use our program, no O&P is charged" as a reason to deny it on a normal claim.
Reframing "GC O&P": New Terminology to Reduce Stigma
The term "General Contractor Overhead & Profit" unfortunately carries baggage in insurance discussions. Some adjusters hear "GC O&P" and reflexively respond, "No GC was hired, so we don't owe that." To combat this, contractors and policy advocates are wise to reframe O&P in terminology that emphasizes the service provided.
Emphasize Project Coordination and Site Management
Instead of calling it "GC O&P," describe it as:
- Project Coordination Fee
- Site Management Overhead
- Coordination & Supervision Cost
These terms focus on what the fee is for – coordinating trades, managing schedules, handling on-site supervision, and associated overhead. This makes it clear that without this effort, the job can't be done properly.
Use "Overhead" in Context
Refer to it as "Administrative Overhead for Multi-Trade Management". Many adjusters accept that a contractor has some overhead; what they push back on is the fixed 10%+10%.
By specifying, e.g., "This item covers the administrative overhead of managing multiple subcontractors, including additional office work, coordination calls, extra site visits, etc.," you are justifying it in concrete terms.
Project Management Line Items
A very effective tactic is to replace a lump-sum O&P with explicit line items for project management hours or site supervision. Many restoration estimators will add items such as "Superintendent/Project Manager - X hours @ $YY/hr" to cover tasks like scheduling trades, quality control visits, communicating with the adjuster, etc.
This is essentially O&P spread out into tangible tasks. The insurer might still question it, but it is easier to defend: "We spent 15 hours on project coordination duties (documented in our logs); we're billing that time just like any other labor necessary to complete the job."
Acknowledge the Elephant – Profit Isn't Evil
Profit is simply the margin that allows a business to stay solvent and take on risks. Remind anyone skeptical that without profit, contractors would not be in business to serve the insured. This reframes profit as a necessary component of the cost – just like a retailer's markup on materials.
Tactical Strategies for Charging Coordination Costs
Sometimes, despite best efforts, an insurer's stance is "we won't allow a 20% O&P on this job." In such cases, contractors and public adjusters can still recover the needed compensation by billing coordination tasks in alternative ways.
Break Out Project Management Labor
Instead of a percentage markup, explicitly add line items for the time spent managing the project. For example, "Project Manager/Supervisor – ___ hours @ $___/hr." This should cover tasks like:
- Scheduling subcontractors
- Arranging inspections
- Coordinating crews
- Site meetings
- Overall supervision
Keep a log of these activities (dates, hours, and tasks performed). By presenting, say, 20 hours of project management at a reasonable hourly rate, you substantiate the cost.
Administrative and Documentation Tasks
A lot of what falls under overhead can be captured as admin/documentation labor:
- Job Documentation & Reporting: Bill the labor to perform moisture mapping, thermal imaging surveys, etc.
- Photo Documentation: Charge time for "Admin – photo documentation (capture, labeling, uploading)"
- Permit Acquisition: Include permit fees and "Permit acquisition labor – 2 hours"
- Client/Adjuster Communication: Log and bill "Project coordination meetings/calls – __ hours"
Subcontractor Arrangement and Site Access Coordination
When multiple subcontractors are involved, there is time spent vetting them, getting quotes, scheduling their work, and often meeting them on site. Instead of burying this in a profit percentage, list it out:
"Subcontractor coordination – 3 visits to site to let in electrician/plumber/etc., 1.5 hrs each = 4.5 hrs total."
By enumerating these tasks, you justify the expense. It conveys the message that coordinating trades is a service being provided to the insured.
Documentation is Key
The more you can document coordination work (time logs, emails, schedules, meeting notes), the stronger your position. Even if the insurer initially resists task-based charges, detailed records can demonstrate that the work was necessary and performed.
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