Overhead Expense and General Conditions

 

When dealing with a large loss there are two categories of expenses we expect to see on an estimate. The first is the general contractor’s overhead. This category includes indirect expenses that are not readily chargeable to any particular job.  This expense represents the contractor’s cost of doing business and his fixed expenses.  He recovers these expenses by sharing them proportionately across all his projects.

 
 
These overheadexpenses represent his main office expense, including rent, supplies, utilities, telephone insurance, staff salaries and other normal operating expenses. Operating expenses will include legal, accounting, marketing, travel and depreciation expense. These costs will be incurred regardless of any particular job.  Overhead on insurance estimates typically run 10% but may go to 15% in heavily developed urban environments; they are negotiable and may be reduced to 8% or less on very large claims.
 
 
In contrast to overheadexpense, General Conditions represent costs to the general contractor that are specific to a particular project.  These are items that do not actually get built into the work and are temporary expenses to facilitate the work.  This will include project specific supervision, site safety expenses, temporary utilities, temporary office facilities, cranes or job-site vehicles, security, sanitation, site cleanup, lighting and weather protection when necessary and signage.  These are temporary and project-specific costs that can be charged directly to the project but are not actually incorporated into the repair itself.
 
 
Bear in mind that General Conditions are estimated at a fixed cost on the estimate. If the contractor spends more it generally comes out of his pocket unless he can convince the adjuster there was a hidden or unforeseeable cost. If he spends less, the savings go to his pocket, not off the estimate.  So there is a built-in incentive for the contractor to fully allow for all potential costs. The adjuster needs to be aware of costs that are either a double-dip component of a direct repair cost, excessive time projections or of questionable necessity. 


Contributed by:
Jerry Provencher
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