💼 Module 6: Applying Overhead, Profit & Contingencies
Finalize your estimate by including overhead, profit margins, and contingency for risk—without losing competitiveness.
📋 Key Takeaways
- Identify and recover all overhead (company & project level).
- Choose a profit target aligned to risk, size, and market.
- Use contingency to cover unknowns—not scope growth.
- Apply markups in a clear, consistent order and document assumptions.
📌 Core Concepts
Overhead (OH): Indirect costs to run the business—admin, rent, insurance, software, vehicles, PM oversight. Recover as % of direct cost or as a fixed allocation.
Profit (GP): Your margin for growth and risk. Pick a target by project type, competition, and strategic value.
Contingency (CT): A buffer for uncertainties (e.g., incomplete info, small scope gaps). Not for known scope or change orders.
Order of Operations: Common sequence: Direct Cost → Overhead → Contingency → Profit (keep it consistent and stated on proposals).
🧰 Overhead Categories (Quick Reference)
| Category | Examples | Notes |
|---|---|---|
| Company OH | Admin staff, rent, utilities, software, insurance | Recovered across all projects (e.g., % of direct costs). |
| Project OH | PM hours, submittals, closeout, small tools | Can be line items or %; don’t bury in labor. |
| Compliance | Safety gear, badging, background checks | Often missed; include for secure/occupied sites. |
| Mob/Demob | Delivery, set-up, cleanup | Itemize if significant or distance-based. |
📈 Profit & Contingency Guides
| Item | Typical Range | When to Adjust |
|---|---|---|
| Profit (GP) | 8% – 20%+ | Higher for complex/risky/fast-track; lower in competitive bid markets. |
| Contingency (CT) | 2% – 10% | Higher for incomplete docs, unknowns, renovations; lower for well-defined scope. |
Use your company policy as the source of truth; adjust to project risk and market conditions.
📊 Sample Calculation (Order of Operations)
Scenario: Direct Cost (materials + labor) = $100,000
- Overhead (OH) = 10% of Direct Cost → $10,000
- Contingency (CT) = 5% of (Direct + OH) → 0.05 × $110,000 = $5,500
- Subtotal = $100,000 + $10,000 + $5,500 = $115,500
- Profit (GP) = 12% of Subtotal → 0.12 × $115,500 = $13,860
Bid Total: $115,500 + $13,860 = $129,360
📌 Document your sequence on the proposal so reviewers see exactly how you built the price.
💡 Pro Tips for Markups
Be explicit: list OH, CT, and GP in internal worksheets; show summarized roll-ups on the client proposal.
Don’t double-count: if PM hours are in labor, don’t add the same hours again in OH.
Tie CT to risk: note the driver (e.g., “demo unknowns, incomplete RCPs”) so PMs can protect it during buyout.