Main contractor’s overheads and profit are the main contractor’s head office administration costs apportioned to each building contract, together with the main contractor’s return on capital investment.
Overheads cover the costs of running the business that cannot be charged to a specific site, such as head office staff, premises, IT, insurance and finance. Profit is the return the contractor expects for its risk and capital. In an NRM 1 cost plan, main contractor’s overheads and profit form a separate group element and are usually calculated as a percentage of the building works and preliminaries. The percentage depends on the market, the contractor’s appetite for work and the risk in the contract. For the QS:
- keep the allowance separate from the element rates so that it can be tested against tender returns;
- remember that subcontractors’ overheads and profit are included in the element unit rates, not in this item;
- under NEC, the equivalent is broadly covered by the Fee percentage.
Related terms: Main Contractor’s Preliminaries, Fee, Mark Up, Element Unit Rate.
