General contractors charge overhead and profit (“o&p”) as line items in repair or rebuild estimates. insurers sometimes resist paying or & p, but they are legitimate costs of doing business and policyholders are entitled to collect insurance benefits to cover them in most scenarios.
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o & p covers the time and expenses of a general contractor and is calculated as a percentage of the total cost of a job. The general rule is that whenever a general contractor (“GC”) is involved in a job with three or more “trades” (subcontractors such as plumbers or electricians), he is entitled to be paid for supervision and coordination. overhead and profit are two different types of costs, but they are almost always combined under the label “or & p” and expressed as two separate numbers; for example “10 and 10”. overhead costs are the costs of running the necessary equipment and facilities. profit is what allows gc to make a living. or & p are expressed as a percentage of a total job. where or & p are set to “10 and 10”, they will be charged as 20% on top of the total job budget.
Common questions that may arise during the adjustment of an insurance claim:
- whether the required construction work will need the kind of supervision and coordination that justifies paying overhead and profit;
- how much or & p the job will require: 5/10, 10/10, 10/15 or even 20/20 if it is a particularly challenging project or situation;
- whether initial payments of actual cash value amounts must include or & p; and
- whether a property owner acting as his own gc is entitled to be paid o and p.
The following objectives help policyholders/property owners answer these common questions:
what is a general contractor and when do you need one?
A general contractor oversees the entire construction project, hires the required trades (carpentry, masonry, plumbing, electrical, etc.), and sequences, coordinates, and supervises their work. The long-standing rule is that whenever you are dealing with more than three trades, a general contractor is needed. the general contractor is also responsible for researching zoning requirements and obtaining any necessary permits.
some examples of overheads are:
- general and administrative expenses;
- rental of offices and public services;
- office supplies;
- salaries and benefits for office staff;
- depreciation of office equipment;
- licenses; and
- workload and employer;
- tools and equipment;
- overhead and profit; and
- miscellaneous direct costs such as permits and taxes.
- the scoop on the “extent” (of loss)
- tips for reviewing adjuster and contractor estimates
- Rebuild 101: A Guide to the Rebuild Process
- questions to ask a contractor
- xactimate demystified
Any general contractor is also entitled to a profit, which is defined as the difference between the cost of the goods and the price for which they are sold.
If you don’t hire a general contractor and instead coordinate the commercial work yourself, you can argue that you’re entitled to either & p. insurers are often reluctant to pay or & p to an insured/owner, especially if he or she is not a construction professional. but many property owners who have documented that they are putting in the time and resources that a general contractor would and have exhausted the resources to negotiate well have been paid & p as part of your claims settlement.
industry customs and practices
Textbooks commonly used in the insurance industry include contractor overhead and profit as a component of repair or replacement cost.
Specific items that comprise repair or rc include:
Why should o&p always be included?
many insurers include both general and specialty contractors/subcontractors or & p when estimating the replacement cost that determines the limit of liability on which an insured’s premiums are based. a strong argument can be made for including costs in every loss, not just when specialized contractors or subcontractors are needed.
Other Claims Help Library Posts:
pennsylvania court rules insurance companies must include general contractor overhead and profits in actual cash value payments for losses where repairs are reasonably likely to require a general contractor, kevin pollack , esq. Of The Merlin Law Group, Property Insurance Coverage Law Blog, May 1, 2017: http://www.propertyinsurancecoveragelaw.com/2017/05/articles/court-opinion/are-insurers-required-to -pay-overhead-and-benefit-for-payments-made-on-the-real-cash-value-basis/
adjust today: “overhead & benefit: your place in a property insurance claim”, edward eshoo jr. esq., of childress duffy in chicago, illinois (http://www.adjustersinternational.com/adjustingtoday/atfullinfo.cfm?start=1&page_no=1&pdfid=43);
merlin law group property insurance coverage law blog, entry March 2013 by corey harris, esq. tampa, florida http://www.propertyinsurancecoveragelaw.com/2014/03/articles/insurance/payment-of-overhead-and-profit/index.html
property loss adjustment, jd donna j. Popow (2003), a textbook published by the Insurance Institute of America for use in its insurance designation and certification programs.
 widely accepted construction estimating publications such as marshall & swift/boeckh, rs stands for and sweets used in the insurance industry to estimate the replacement cost of commercial buildings and residential homes, define replacement cost to include labor , materials and contractor costs. or & p.
 the property loss investigation bureau (plrb), a recognized resource used by insurers in interpreting the provisions of property insurance policies, has taken the position that “overhead and Contractor earnings are included in ACV, because they are part of replacement cost.” – “any estimate of actual cash value must include or & p.”
 replacement cost (“rc”) vs. actual cash value (“acv”) are two ways to measure the value of an item or a construction project. an object (such as a sofa) has both a replacement and an actual cash value. A repair or rebuild project has both a replacement and an actual cash value. most insurance policies contain specific definitions of these two terms. in this post we are only talking about repair and rebuild projects. or & p has nothing to do with replacing an object (a sofa, a lamp, etc.). most states have rc and acv laws. up discusses these terms in many of our claims help library posts. While most insurers sell RC value coverage, their policy contracts generally say that they are not required to pay more than ACV until the damaged or destroyed property is repaired or replaced.