Profit in accounting is the difference between revenue and cost. In an estimate or tender, it is the allowance the contractor adds to provide for the profit it expects to make on completion of the project.
Contractors usually add profit together with head office overheads as a single percentage, often referred to as overheads and profit (OHP). The level chosen depends on market conditions, risk, workload and how much the contractor wants the job. Under NEC contracts, the contractor’s profit and overheads are recovered through the Fee, which is calculated by applying the fee percentage to Defined Cost. When valuing variations or reviewing a cost report, a quantity surveyor should be clear about:
- whether a rate already includes overheads and profit
- the difference between gross profit and net profit
- the difference between profit margin and markup
Related terms: overheads, profit margin, Fee, contribution.
