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Overhead and Profit in Restoration: What You’re Owed and How to Collect It

Overhead and profit (O&P) is one of the most debated topics in the restoration industry. The standard formula, known as “10 and 10,” adds 10% for overhead and 10% for profit on top of the direct cost of restoration work. Most insurance policies include O&P as a legitimate line item, yet carriers routinely deny or reduce these charges, costing restoration companies thousands of dollars per job.

According to the Restoration Industry Association (RIA), O&P disputes account for a significant portion of underpayment complaints from restoration contractors. A 2024 Xactware industry analysis found that restoration companies that consistently and properly document their O&P entitlement collect an average of 22-28% more per job than companies that accept initial estimates without pushing back.

This guide explains what O&P covers, when you’re entitled to it, why carriers deny it, and how to collect what you’re owed.

What Overhead and Profit Actually Covers

Overhead and profit are two separate charges that get lumped together, but they cover different things.

Overhead (the first 10%) covers the indirect costs of running your restoration business that aren’t tied to a specific job but are necessary to complete every job:

Profit (the second 10%) is exactly what it sounds like: the margin your company earns for taking on the risk and responsibility of completing the restoration project. Without profit, there’s no incentive for your company to exist, maintain IICRC certifications, invest in equipment, or be available 24/7 for emergency calls.

“Overhead and profit aren’t gravy on top of a job,” says Mark Springer, who serves as a technical advisor for the Restoration Industry Association. “They’re the cost of doing business. Without O&P, restoration companies can’t maintain the certifications, insurance, and equipment that insurance companies require them to have.”

The “10 and 10” structure yields a combined 20% add-on to the net direct cost of the job. On a $10,000 water damage mitigation project, that’s $2,000 in O&P. Over the course of a year with 200 jobs, that’s $400,000 in revenue that many restoration companies leave on the table.

When You’re Entitled to Overhead and Profit

The rules around O&P entitlement vary by state and by insurance policy language, but the general industry standard, supported by Xactimate’s pricing methodology and multiple state Department of Insurance rulings, is:

The Three-Trade Rule

The most commonly cited standard for O&P entitlement is the “three-trade rule.” If a restoration project requires three or more distinct trades (e.g., water mitigation, drywall repair, painting, flooring installation), the general contractor coordinating those trades is entitled to O&P for managing the project.

According to a 2023 analysis published in Claims Journal, the three-trade rule originated from Xactimate’s pricing structure, which includes O&P as a separate line item category specifically for multi-trade coordination. The idea is that when a restoration company acts as a general contractor coordinating multiple subcontractors or trade specialties, the management overhead justifies the additional charge.

When O&P Applies Beyond Three Trades

Several state insurance departments and court rulings have established that O&P can apply even without three trades present, particularly when:

“The three-trade rule is a guideline, not a law,” says an insurance litigation attorney quoted in a 2024 R&R Magazine roundtable on O&P. “Many courts have found that O&P is warranted whenever a contractor provides general contracting services, regardless of the specific number of trades involved.”

Why Insurance Carriers Deny O&P

Understanding why carriers push back on O&P helps you prepare stronger documentation. The most common denial reasons:

“Only One Trade Was Involved”

This is the most frequent denial. The carrier argues that because your company performed all the work (mitigation, demo, reconstruction) with your own crews, no general contracting coordination occurred. The counter-argument: your company still managed the project, maintained insurance, provided equipment, handled documentation, and coordinated with the adjuster. Those are general contracting functions regardless of whether you used internal crews or subcontractors.

“O&P Isn’t Included in This Program”

Some TPA programs exclude O&P from their pricing structures. If you signed a vendor agreement that waives O&P, you may have contractually given up the right to charge it on program jobs. Review every vendor agreement carefully before signing. The RIA recommends having an attorney review TPA contracts specifically for O&P language.

“The Policy Doesn’t Cover O&P”

Some carriers claim the homeowner’s policy doesn’t include O&P coverage. In most cases, this is inaccurate. Standard homeowner policies cover the cost of restoring the property to pre-loss condition, and O&P is a standard component of restoration pricing recognized by Xactimate. However, policy language varies, and some policies do have exclusions.

“Your Estimate Already Includes Overhead”

Carriers sometimes argue that the line-item pricing in Xactimate already includes overhead in the unit pricing. This is technically true for Xactimate’s “retail” pricing, which bundles some overhead into unit costs. The O&P charge covers the additional overhead of managing a multi-trade project, not the overhead embedded in individual line items.

How to Document and Collect O&P

Strong documentation is the difference between collecting O&P and leaving money on the table. Here’s a practical framework:

Step 1: Document the Scope at the Start

Before beginning any work, document every trade and specialty that the project will require. Use photos, moisture readings, and thermal imaging to establish the full scope. The more trades you can identify upfront, the stronger your O&P justification.

For a typical water damage restoration project, trades might include:

That’s potentially eight trades on a single water damage job. Document each one with scope notes and photos.

Step 2: Use Xactimate Line Items Properly

In Xactimate, O&P is a separate category that gets applied to the net total of the estimate. Make sure your Xactimate estimates include O&P as a standard line item on every multi-trade project. Don’t wait for the adjuster to add it. Include it in your initial estimate with a clear notation explaining why it applies.

Step 3: Submit Supporting Documentation

Along with your estimate, submit:

Step 4: Supplement When Denied

When a carrier denies O&P, don’t accept the denial without pushing back. Submit a formal supplement with:

According to industry estimates from supplement management companies like One Claim Solution, restoration companies that systematically supplement for denied O&P recover the charge on 60-70% of initially denied claims.

State-Specific O&P Rules

O&P rules aren’t uniform across the country. Some states have explicit Department of Insurance guidance, while others rely on case law and industry standards.

State Category O&P Position Examples
States with favorable DOI rulings O&P generally supported for multi-trade work Texas, Florida, Colorado
States relying on case law Court decisions generally support O&P California, New York, Georgia
States with limited guidance Industry standards apply by default Most remaining states
States with restrictive practices Carriers more aggressively deny O&P Some Midwestern states

The key takeaway: know your state’s specific rulings and case law. The RIA maintains a state-by-state resource guide for O&P precedent. Your insurance marketing materials should reference your familiarity with state-specific regulations as a credibility signal to both adjusters and homeowners.

The Financial Impact of O&P on Your Business

Let’s do the math on what O&P collection means for a typical restoration company’s bottom line.

Assume a mid-sized restoration company completes 200 jobs per year with an average project value of $8,000 (net, before O&P).

That $256,000 goes straight to your gross margin. For a company doing $1.6M in net revenue, that’s a 16% revenue increase from a single billing practice. When you look at your financial benchmarks, O&P collection rate is one of the most impactful metrics you can improve.

“The difference between a profitable restoration company and one that’s barely surviving often comes down to O&P collection discipline,” says a financial consultant who works with restoration companies, quoted in Cleanfax magazine’s 2024 profitability issue. “Companies that treat O&P as optional are leaving their profit margin on the table.”

Building O&P Into Your Standard Process

Overhead and Profit in Restoration: What You're Owed and How to Collect It

O&P collection shouldn’t be a special effort. It should be part of your standard operating procedure on every job.

Estimator Training

Every estimator on your team should understand O&P rules, know how to document trade involvement, and include O&P on every qualifying estimate. Build it into your Xactimate estimating workflow so it’s automatic, not an afterthought.

Supplement Tracking

Track O&P denials and supplement outcomes in your CRM. You need to know:

This data tells you where to focus your collection efforts and which carrier relationships need attention.

Adjuster Communication

Don’t wait for a denial to discuss O&P. When you meet the adjuster on-site for the initial inspection, proactively mention that the project involves multiple trades and that your estimate will include O&P. Setting expectations early reduces confrontation later.

Maintaining positive adjuster relationships while firmly advocating for fair compensation is a skill that takes practice but pays for itself many times over.

Frequently Asked Questions

Is the “10 and 10” rule a law?

No. The 10% overhead and 10% profit structure is an industry standard recognized by Xactimate and widely accepted in the restoration industry. It’s not codified in federal or state law, though many state Department of Insurance rulings and court decisions have affirmed it as reasonable and customary.

Can a TPA contractually prevent me from charging O&P?

Yes, if you sign a vendor agreement that waives O&P, you’ve contractually agreed to those terms for program work. That’s why it’s critical to read TPA agreements carefully. The RIA strongly advises against signing agreements that eliminate O&P without corresponding increases in unit pricing.

What’s the difference between O&P and a supplement?

O&P is a specific line item category covering overhead and profit on multi-trade projects. A supplement is any additional charge submitted after the initial estimate for work that wasn’t included in the original scope. You can supplement for O&P (if initially denied) and for additional work discovered during the project.

Should I charge O&P on mitigation-only jobs?

This is debated. If a job is strictly mitigation (extraction and drying) with no reconstruction, many carriers argue O&P doesn’t apply because it’s a single trade. If the mitigation involves multiple specialties (water extraction, structural drying, contents handling, antimicrobial application), you have a stronger case. Document every distinct service performed.

How do I handle a homeowner caught in the middle of an O&P dispute?

Be transparent with the homeowner. Explain that O&P is a standard industry charge and that their insurance policy should cover it. Provide documentation they can share with their adjuster or agent. Never pressure the homeowner to pay O&P out of pocket. The dispute is between your company and the carrier.

What resources does the RIA provide for O&P disputes?

The RIA offers position papers on O&P, state-specific guidance, template letters for O&P supplements, and access to legal resources through their advocacy program. RIA membership ($500-$1,500/year depending on company size) provides access to these tools plus the annual TPA Scorecard.