What represents a contractor's overhead in estimation?

A contractor's overhead in estimation is represented by the indirect costs incurred to operate their business. These costs are essential for maintaining the overall functionality and sustainability of the contractor's operations but do not directly relate to specific construction activities. Overhead can include expenses such as administrative salaries, utilities, office supplies, and insurance, among others.

By understanding overhead as indirect costs, estimators can effectively allocate these expenses into their project budgets, ensuring that all necessary operational expenditures are considered. This is crucial for achieving accurate estimates that reflect the true cost of doing business, allowing contractors to maintain profitability while accurately bidding on projects.

In contrast, direct costs of materials and costs for project labor only represent the specific expenses tied directly to the execution of a project, and thus do not fall under overhead. Revenue generated from projects is also not a cost; rather, it is the income that results from the completion of projects. Recognizing the distinction between direct costs and overhead is fundamental for any contractor when preparing estimates and financial plans.