Overhead and Profit What is and isn’t included in Xactware
Pricing
OREM, UT, November 22, 2003 - For individual trades, Overhead is any additional
expense not charged (attributed) directly to the work being performed. Overhead is
typically classified as an indirect cost. Profit is formally defined as
"the excess of the selling price of goods over cost."* Profit is typically added to
the cost of a construction-related job to allow the entity performing the
work to grow their company through reinvestment.
Xactware, an industry leader in providing estimating software, services,
and building cost data since 1986, has recognized three categories of overhead.
It is the individual user who determines how overhead is added to the estimate.
The information listed below provides general guidelines into how Xactware's published
pricing is created and intended to be used. When Xactware performs market research on
unit prices, those surveyed are specifically asked to not include expenses that would
be included in the category of General Overhead (item #1 below).
- General Overhead are expenses
that cannot be attributed to individual projects, and include any
and all expenses necessary to operate a business.
Examples (including but not limited to): General and Administrative
(G&A) expenses, office rent, utilities, office supplies, salaries for office
personnel, depreciation on office equipment, licenses, and advertising.
Including General Overhead expenses in an Xactimate estimate--General
Overhead expenses are not included in Xactware’s unit pricing, but are typically
added to the estimate as a percentage of the total bid along with the appropriate
profit margin. These two costs together constitute what is normally referred to
in the insurance restoration industry as General Contractor's O&P, or just O&P.
General Overhead and Profit percentages can be added in the Estimate Parameters
window within an Xactimate estimate.
- Job-Related Overhead are expenses
that can be attributed to a project, but cannot be attributed to a specific
task and include any and all necessary expenses to complete the project
other than direct materials and labor.
Examples (including but not limited to): Project managers, onsite
portable offices and restroom facilities, temporary power and fencing, security
if needed, etc.
Including Job-Related Overhead expenses in an Xactimate estimate--Job
Related Overhead expenses should be added as separate line items to the
Xactimate estimate. This is done within the Line Item Entry window of an
Xactimate estimate by selecting the proper price list items, or creating your own
miscellaneous items.
- Job-Personnel Overhead are expenses
that are related to having one’s own employees perform the work.
Examples: Vehicle costs, uniforms, mobile phones, depreciation on
hand-tools owned by the company, etc. These expenses will be incurred either by
the general contractor or by a sub-contractor, depending on who is actually performing
the work. If the work is being sub-contracted, then these expenses are commonly called
Sub-Contractor Overhead and Profit.
Including Job Personnel Overhead/Sub-Contractor O&P in an Xactimate estimate--
Job Personnel Overhead (or Sub-Contractor O&P) expenses are included in the Labor
Overhead portion of each unit price in the Xactware price list. The Labor Overhead,
along with expenses for Labor Burden and Worker Wage (wage paid to the individual) make
up the Retail Labor Rate. For more information on Retail Labor Rates, see the white-paper
in the “Helpful Downloads” section of Xactware's eService Center at:
http://eservice.xactware.com/apps/esc/retail_labor1.jsp.
Updating the Labor
Overhead portion of the Retail Labor Rate is done from the Component List of an Xactimate estimate.
Once within the Component List, select the option to view Retail Labor Rate components. This list
allows you to view and modify all Retail Labor Rates used within the estimate. Price changes to a
Retail Labor Rate here will affect prices in all items in the estimate that use this Retail Labor
Rate.
Xactware publishes
and makes unit price data available to all customers each quarter, based off market surveys. Every
effort has been made to ensure that Xactware's users can access, view, and modify all detail within
the published unit prices.
The building cost data
published by Xactware is not designed to be inclusive of sales tax, General O&P, or Job-Related O&P
within the unit prices. These can be specified and added at print time after all line items have
been listed. However, Xactware has designed flexibility into the system so this is not mandatory.
Xactware’s users have the option to add these costs to their line items as they choose. The Xactimate
system is designed to provide full detail on all costs that are incurred.
*Merriam Webster Dictionary—new edition—1994
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