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what is the average contractor's O&P for residential construction in California?

CaliforniaPayment Disputes

The contractor seems to be marking up the trades prices (no back up document) and charging additional 22% for their overhead & profit and insurance (which we never even saw their ins). Originally, they provide a price for core and shell to build our house, which seems cheaper than the other contractors. Then I asked for all the excluded pricing for the work and finishes, which they provide a ball park, saying it depends on our finish selections. And they said they would work with us and recommend us contacting the millworks and other finishes direct, as well as outlet places for better pricing. Now that we are finish with the roughs and ready to start the finishes, they came back and said they gave us national standard prices. What is the California O&P and what can I do?

1 reply

Aug 17, 2018
This is an interesting and difficult situation. With respect to the first question, there really isn't an actual "industry standard." There is a lot of chatter and a belief that 10% overhead and 10% profit is pretty standard for residential construction jobs - or even a belief that a "cost + 10%" contract is sufficient, but that's not really the case. In fact, a residential contractor can easily have overhead costs of 20-40% of revenue; and a home builders report noted an average of a little under 4% as actual take home profit.

22% for overhead/profit is not out of scope of general practice.

If your issue is that you think a 22% total markup to include overhead and profit is too high, there's likely not a huge amount of wiggle room - but the real question is what the contract said (and whether there were any change orders, or modifications to the scope of work and price). California doesn't allow contractors to be paid prior to the work being done or materials furnished, other than allowing a down payment. And, there are rules that must be followed with respect to a "home improvement" contract. So if there was a contract for a certain price and the work was done according to the contract, the contract should control and provide the amount due. You can find more information at the CA Contractors State License Board.

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