Introduction
The industry widely accepts that General Contractor Overhead and Profit (O&P) can be a legitimate and essential component of any construction or restoration project. However, insurers frequently dispute the inclusion of O&P specifically for water-damage mitigation services, often on the basis that the work is too simple. This report demonstrates why O&P must be included in all mitigation claims, showing that this specialized, emergency work not only justifies the expense but frequently involves the most complex coordination on a claim.
The insurer's primary argument for excluding Overhead and Profit is a perceived lack of complexity in the work. As this report will demonstrate, the opposite is unequivocally true: emergency water mitigation is a highly complex process requiring advanced, general contractor-level coordination and is considered one of the most complicated trades in Xactimate. If an insurer is willing to pay O&P for less-complicated trades like drywall, insulation, or paint work, then water mitigation—with its demonstrably greater complexity—is certainly entitled to the same inclusion.
The only other argument they might offer is that it is an "Industry Standard" for mitigation contractors to exclude O&P from their estimates. This assertion is absolutely untrue, as the following information will demonstrate.
1. Mitigation Requires General Contractor-Level Coordination
Multi-Trade and Specialized Scope
Mitigation work is not a single trade. It involves a rapid sequence of specialized tasks such as water extraction, content manipulation, structural material removal (demolition), application of antimicrobials, and continuous monitoring of specialized drying equipment (dehumidifiers and air movers). It often requires coordinating with electricians for temporary power and carpenters for structural bracing, effectively requiring the licensed supervision of a general contractor.
Due to the required supervision across many pieces of equipment and a very dynamic workflow schedule that is constantly changing, a licensed mitigation contractor operates as a general contractor and is entitled to O&P.
Common Insurer Objections & Rebuttals
Insurers commonly use several other arguments to attempt to deny O&P on mitigation claims, despite the work's inherent complexity.
| Insurer Objection | Rebuttal Based on Facts |
|---|---|
| "O&P is not owed unless three trades are involved." | The "three-trade rule" is an arbitrary "guideline" invented by insurers with no basis in policy language or Xactware's official documentation. O&P is justified by the complexity of coordination and supervision required, not simply a count of trades. Mitigation is not a single trade but an inherently multi-faceted process, often involving more coordination than simple reconstruction due to the specialized equipment and 24/7 nature of the work. |
| "Mitigation providers are not general contractors, so O&P does not apply." | Water mitigation companies in many states are required to hold a general contractor license. Regardless of their formal title, they perform essential general contractor duties: coordinating trades, sequencing emergency work, supervising subcontractors, and managing specialized equipment. |
2. The Mitigation Contractor as a Complex Administrator
Hazardous Materials & Regulatory Coordination
A mitigation contractor must coordinate with environmental testing for potential hazards like lead, asbestos, and mold before any demolition or drying can be finalized. This requires administrative oversight, scheduling, and adherence to specific remediation protocols (abatement, containment, air quality monitoring) that have no equivalent in basic reconstruction.
Critical Containment Management
Mitigation requires the constant monitoring and maintenance of containment areas, including controlling ingress and egress to prevent cross-contamination, a critical safety and procedural step far exceeding the logistics of general interior trades.
Equipment and Environmental Management
The contractor must manage, monitor, and maintain a large inventory of specialized drying equipment (air movers, dehumidifiers, air scrubbers) on a 24/7 basis, constantly adjusting to environmental readings, which is a coordination layer entirely absent in trades like drywall or painting.
3. The Scale of the Claim as the True Determinant
It is difficult to argue that a drywall contractor performs more administrative or site coordination than a licensed mitigation firm. Therefore, a plausible, alternative explanation for the denial of O&P on mitigation (and similarly, on large-scope roofing claims) is the scale of the expense, not the complexity.
Mitigation and Roofing as "Big Tickets"
In many claims, water mitigation and roofing are the largest single-ticket items. Insurers are willing to pay O&P on small-scope, interior trades because the O&P amount is small. When O&P is applied to a high-cost mitigation or roofing line item, the dollar amount becomes significant, and insurers are financially motivated to deny the expense, irrespective of the actual, demonstrable complexity of the work.
4. The "Non-Zero Value" Argument: The Inherent Cost of Administration
Even if one were to set aside the demonstrable complexity of emergency mitigation, the administrative and supervisory labor required to execute such a project is a tangible business cost. By definition, the value of this coordination is not zero.
- The Logistical Reality: Every hour spent sequencing equipment, managing specialized labor, and documenting psychrometric data represents a real-world overhead expense.
- The 20% Baseline: While the industry standard for this oversight is 20% (10/10), many professionals argue that the extreme liability and 24/7 nature of emergency mitigation actually justify a much higher rate.
- A Logical Impossibility: To offer 0% for Overhead and Profit is to suggest that a complex, high-liability emergency project can be managed, insured, and coordinated for free. This position is not only a departure from the Principle of Indemnity but is commercially and logically unsustainable.
Conclusion
There is no official rule excluding water mitigation from O&P. The complexity, emergency nature, and necessary coordination of water-damage mitigation work unequivocally require the involvement of a contractor operating in a general contractor capacity. Failing to pay O&P on water-damage mitigation undermines the insured's duty to mitigate, forces contractors to absorb legitimate business costs, and is a clear violation of the indemnity principle.
The most compelling argument for O&P on mitigation is that its complexity and coordination demands are demonstrably higher than many reconstruction trades (like drywall, painting, or insulation) where O&P is often paid without issue.
The demonstrable complexity and emergency demands of mitigation work serve as the clear, factual justification for O&P. Consequently, the significant cost of this specialized service is the more probable economic motive behind insurers' targeted and opportunistic denials.
Despite having no legitimate argument for its exclusion, insurers persist in this denial tactic, knowing that many claims will ultimately go undisputed.
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