Bid Deduct

  

A "bid deduct" applies to contractors working on particular building projects, which provide the ability to leave figures related to workers compensation and other insurance out of the bid they made to win the contract.

Usually, when a contractor takes a job, they need to buy insurance, in case someone gets hurt while working on the project. They factor these costs into the bid they submit for the project. When they say, "we can do this for $X" that X includes the cost of workers compensation and other insurance.

However, for some large projects, this insurance is already covered. Large projects predominantly work by having a single large company farm work out to multiple subcontractors. In these situations, the main contractor might have insurance coverage that also applies to any subcontractor they bring on. This type of coverage is called an Owner Controlled Insurance Program, or OCIP.

The bid deduct lowers the subcontractor's bids, because they don't need to include the insurance coverage. It's already baked into the cost of the overall project.

Related or Semi-related Video

Finance: What is Spread To Treasuries?3 Views

00:00

Finance allah shmoop what is spread to treasuries All right

00:08

all right close that play bond magazine there people The

00:11

answers are all right here Spread to treasuries is not

00:15

a type of you know art photo but rather it's

00:18

an indication of risk associated with a given debt or

00:21

bond offering In the investing world Everything is calculated as

00:25

some additional premium or additional cost or additional capital rental

00:31

percentage all tact on to the safest investment in the

00:35

world Things from the us treasury like t bills and

00:39

bonds stuff like that from treasury We'll think about it

00:42

like you're going to a restaurant looking at the dinner

00:45

salad there for three bucks It's the cheapest thing on

00:48

the menu if you wanted a steak Well that state

00:51

costs fif eighteen dollars but it's a spread or premium

00:55

to the dinner salad of twelve bucks right Three bucks

00:58

for the south and you'd have to add twelve from

01:00

state prize You get stick And if you really wanted

01:03

to just use smaller numbers so that your customers would

01:06

have the illusion that they were paying fewer box for

01:09

dinner well you could describe everything in your restaurant as

01:12

some spread to dinner salad such that this medium rare

01:16

rib eye was in fact simply a spread to salad

01:19

or premium of twelve bucks Even though you're paying fifteen

01:23

anyway Us treasuries air broadly considered to be the safest

01:27

bond bet in the world at least today until china

01:30

or robots or both take everything over So when a

01:33

bond offering is made it is priced relative to treasuries

01:37

in the same way dinner items would be priced relative

01:41

to that dinner salad house salad there with the oil

01:44

and vinegar dressing that is if the bond offering is

01:47

for say ten years than the u s treasury ten

01:50

year paper that moment would be the foundational elements against

01:54

which their risk your debt instruments would then be priced

01:58

So let's say that today that ten year treasury paper

02:02

is yielding three point two percent Caterpillar tractor wants to

02:05

borrow a billion dollars to build their new tractor smelting

02:09

plant there then offered by investors one hundred twenty basis

02:13

point spread to treasuries debt deal to a fund that

02:17

factory with a billion dollars of debt What does that

02:19

mean It means that lenders are willing tto loan caterpillar

02:23

A billion dollars payable in ten years at three point

02:27

two percent per year plus one point two percent for

02:30

total interest of four point four percent interest per year

02:35

You know take it or leave it That's it So

02:37

to recap this is play bond magazine and this is

02:40

play But magazine reads it for the articles Really weird

Up Next

Finance: What is Spread?
48 Views

What is spread (bid-ask)? The bid-ask spread compares how much a buyer will pay to how much the seller will sell for. The asking price is what the...

Find other enlightening terms in Shmoop Finance Genius Bar(f)