Category: Quantities & pricing
Prepared by Eng. Ahmed Fathy, Projects Manager ·
Definition
Overhead and profit is the margin a contractor adds to direct cost. Overhead covers head office, management, insurance, guarantees and financing, and profit is the return on risk and capital.
Why it matters on a project
Knowing it helps the owner understand differences between offers, and helps the contractor price sustainably so any delay does not turn into a loss.
Measurement and pricing
A percentage of direct cost after site indirect costs are added, then spread into the unit rates of the BOQ.
Worked example
Direct cost 1,000,000 SAR, site indirect costs 12% and profit 10%: 1,000,000 × 1.12 = 1,120,000, then × 1.10 = 1,232,000 SAR selling price.
Common mistake
Adding one flat percentage on the total at the end of the sheet instead of building it from real costs, so the price falls below cost on long projects.
Frequently asked questions
What is a usual profit margin?
It varies with project size, competition and risk, and is built from the project study, not a fixed number.
Does the owner see this margin?
In most offers it is spread inside the unit rates; some contracts ask for it to be shown.
Related terms
- Direct costThe sum of material, labour and equipment cost of an item excluding overheads.
- Indirect costs (overheads)Site and head-office costs not attributable to a single item, added as a percentage.
- Unit rateThe item price per unit of measure, built from material, labour and equipment then indirect costs and profit.
- PreliminariesItems at the start of the BOQ covering general site requirements.
Read next
Does your project need quantity take-off and BOQ pricing? Send the drawings or a short description and we reply within one working day.
Service detailsRequest a quote