Ch 6 · Reading the Carrier's Estimate
Module 6.5
Overhead and Profit (O&P) — The Three Trades Rule
20% on top when 3+ trades. Industry standard. Carriers leave it off. Math + counter-arguments.
10 min read
What you'll learn
The 20% on top of repair work that almost always belongs in your claim. The "three trades rule" — what it is, where it comes from, why carriers leave it off. The single argument that adds 15-20% to most claims.
6.5.1 What O&P is
When repair work involves multiple trades, a General Contractor (GC) is reasonably required to:
- Coordinate trades + scheduling
- Pull permits + manage inspections
- Source materials
- Supervise quality
- Handle warranties
- Carry insurance for the project
GC charges Overhead (running their business — office, insurance, equipment, payroll) and Profit (their margin) to coordinate the work.
Industry standard: 10% Overhead + 10% Profit = 20% on top of trade work.
6.5.2 The three trades rule
The most common industry standard for when O&P is reasonably required:
When 3 or more trades are involved in the repair, a GC is reasonably required, and O&P should be added.
What counts as a trade
| Trade examples |
|---|
| Drywall + paint |
| Flooring (tile, carpet, hardwood) |
| Plumbing |
| Electrical |
| HVAC |
| Roofing |
| Framing / structural |
| Cabinets / millwork |
| Tile |
| Demolition |
A simple water-damaged ceiling repair = drywall + paint = 2 trades, no GC needed.
A whole-bath gut = drywall + paint + tile + plumbing + electrical + cabinets = 6 trades, GC required, O&P applies.
6.5.3 Why carriers leave O&P off
Saving 20% across an estimate is significant. Common carrier patterns:
- Default Xactimate setting for some carriers excludes O&P from initial estimate
- Manual override by adjuster to remove O&P
- Argument: "your homeowner can manage trades themselves" (rare in reality)
- Reality: most homeowners can't and won't self-coordinate 6 trades
If your repair involves 3+ trades and the estimate has no O&P → rebuttal point.
6.5.4 The math impact
| Repair total before O&P | O&P (20%) | Total w/ O&P | Difference |
|---|---|---|---|
| $10,000 | $2,000 | $12,000 | $2,000 |
| $25,000 | $5,000 | $30,000 | $5,000 |
| $50,000 | $10,000 | $60,000 | $10,000 |
| $100,000 | $20,000 | $120,000 | $20,000 |
On any meaningful claim, missing O&P = thousands lost.
6.5.5 Where to find (or not find) O&P in the carrier estimate
Look at the Xactimate summary
Material Total: $18,500.00
Labor Total: $12,200.00
Subtotal: $30,700.00
Sales Tax: $1,250.00
Overhead (10%): $3,070.00 ← here
Profit (10%): $3,070.00 ← here
RCV: $38,090.00
If those Overhead + Profit lines are missing or zero → flag.
Or it may be hidden in line items
Sometimes carriers bake a partial GC fee into individual line items rather than a separate O&P bucket. Check the math: do the line items individually add up to the subtotal? If yes, no separate O&P is being applied.
6.5.6 The O&P rebuttal
Format:
OVERHEAD AND PROFIT (O&P) SUPPLEMENT
The repair scope for [date of loss] involves the following trades:
1. Demolition + debris removal
2. Drywall (R&R + texture)
3. Painting
4. Flooring (tile + transitions)
5. Plumbing (faucet, supply lines, drain)
6. Electrical (outlets, GFCI, switch)
7. HVAC (vent register replacement)
8. Cabinetry (vanity replacement)
Total trades: 8
Per industry standard (the "three trades rule"), when 3 or more
trades are involved in repairs, a General Contractor is reasonably
required to coordinate, supervise, permit, and warranty the work.
Standard GC compensation: 10% Overhead + 10% Profit = 20% on
the total repair cost.
Repair subtotal (per carrier estimate): $32,500
O&P at 20%: $6,500
Adjusted RCV: $39,000 (before depreciation, deductible)
Supporting documentation:
- Carrier estimate showing trade involvement (Exhibit A)
- Contractor quote including O&P (Exhibit B)
- Industry references on the 3-trades rule (Exhibit C)
6.5.7 Common carrier counter-arguments
"We don't pay O&P unless a GC is actually hired."
Counter: O&P is owed when a GC is reasonably required, not only when actually hired. Standard industry rule. Multiple state courts have ruled in favor of this position.
"The homeowner can self-coordinate."
Counter: most homeowners cannot reasonably coordinate 5+ trades, pull permits, schedule, supervise. Reasonable standard, not theoretical capability.
"O&P doesn't apply if you do the work yourself."
Counter: this argument is often made to push DIY → save the carrier 20%. The "reasonably required" standard doesn't change because you might DIY; if a GC would reasonably be needed, O&P is owed.
"We use Xactimate; their default doesn't include O&P."
Counter: Xactimate has an O&P toggle. The carrier's adjuster turned it off. The 3-trades industry standard supports its inclusion.
"Your contractor included O&P in their bundled price; we won't pay both."
Counter: legitimate point. Make sure your contractor's quote either (a) includes O&P explicitly as a separate line, or (b) shows trade-level pricing with O&P added. No double-charge.
6.5.8 When O&P doesn't apply
Be honest:
| Situation | O&P? |
|---|---|
| 1-2 trade repair (drywall + paint only) | No |
| Simple roof replacement (1 trade — roofer) | Probably no |
| Cabinets only (1 trade — cabinet installer) | Probably no |
| Carpet only (1 trade — carpet) | No |
| Mid-size whole-room rebuild (4+ trades) | Yes |
| Total kitchen remodel (8+ trades) | Yes |
| Hurricane structural rebuild (many trades) | Yes |
Don't claim O&P on simple 1-2 trade work. Carrier will rightfully push back. Pick your battles.
6.5.9 Sales tax on O&P
Florida sales tax applies differently to materials vs labor.
- Materials: 6% state + county add-ons (typically 6.5-7.5% total)
- Labor: generally not taxed in FL (except specific service categories)
O&P is calculated before sales tax in most Xactimate setups. Verify the math:
Material + Labor + Sales Tax + Overhead + Profit = RCV
If sales tax is calculated on the wrong base → math error. Catch it.
6.5.10 Action steps
- Count the trades in your repair.
- If 3+ trades → check carrier estimate for O&P.
- If O&P missing or partial → build rebuttal using format in 6.5.6.
- Verify your contractor quote includes O&P (so you're not asking the carrier to pay twice).
- Submit O&P supplement w/ scope + pricing rebuttals.
Next: 6.6 Writing a Rebuttal That Gets Results.
Educational. Not legal advice. The "3 trades rule" is industry standard, not statute. Specific application varies by jurisdiction and case law. Verify current law for your specific claim.