In Plain English
Quick Answer
The indirect costs of running the business and managing the project that are spread across all work.
Definition
Definition
Overhead refers to the indirect costs of running a construction business or project that cannot be directly charged to a specific work item. It includes both field overhead (general conditions) and home office overhead such as executive salaries, rent, and marketing. Contractors recover overhead through markups applied to direct costs.
Context
Why It Matters in Bidding
Overhead recovery determines whether a contractor actually makes money on a job, because direct costs alone never cover the cost of running the business. Estimators must split field overhead, which is bid as general conditions line items, from home office overhead, which is recovered as a percentage markup. Misallocating either understates the bid and erodes margin across every project in the portfolio.
Example
Example
Building a hard-bid number, the estimator lists $185,000 of project-specific general conditions as field overhead, then applies a 9% home office overhead markup on top of direct costs to recover the company's fixed corporate expenses.
See Also
Related Terms
FAQ
Questions Contractors Ask
What is the difference between field overhead and home office overhead?
Field overhead, or general conditions, is project-specific cost like the site trailer, superintendent, and temporary utilities, and is bid as discrete line items. Home office overhead is the cost of running the company, such as rent and executive salaries, and is recovered as a percentage markup spread across all active jobs.
How do contractors calculate an overhead markup percentage?
They divide projected annual home office overhead by projected annual revenue or direct cost volume to derive a recovery rate. A contractor with $1M of overhead expecting $12M of direct cost would need roughly an 8.3% markup just to break even on indirect costs before adding any profit.
Why is unrecovered overhead dangerous when bidding low?
If volume drops below the level assumed in the markup calculation, fixed home office overhead still must be paid, so each job carries a larger share. Cutting markup to win work can leave overhead under-recovered, meaning the company loses money even when individual jobs appear to cover direct costs.
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