Overhead and Profit (O&P) is the markup applied on top of direct costs to cover the cost of running the contractor's business and to generate profit. Overhead covers the indirect costs that don't belong to a specific project: office rent, accounting and admin staff, software, marketing, insurance, owner's salary, and similar fixed expenses. Profit is the margin remaining after all costs are paid, which the business needs to fund growth, weather slow periods, and reward owners.
Typical commercial GC O&P runs 10 to 20% of direct cost combined (often broken out as 5 to 10% overhead and 5 to 10% profit). Specialty trades run higher (15 to 30%) because their direct cost base is smaller. Residential remodelers commonly run 20 to 30% combined. Every shop should calculate its actual overhead recovery rate annually from the prior year's P&L and use that as the floor for current bids. Bidding with industry-rule-of-thumb O&P while running unknown actual overhead is the leading cause of contractors who appear profitable but actually drain cash year over year.