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Bid Deduct

Bid Deduct

What Is Bid Deduct?

Bid deduct alludes to when contractors' bids for a project reject the cost of giving workers' compensation, general liability, and excess liability insurance since insurance is now given by the owner of the project through an owner-controlled insurance program (CIP). The bid deduct methodology will reduce the amount a contractor bids for a project as they never again need to incorporate the cost of insurance.

Bid deduct is otherwise called insurance credit.

Understanding Bid Deduct

Generally speaking. a contractor or subcontractor purchases insurance that covers wounds to its employees while they are at work. Now and again, particularly with bigger projects, the company dealing with the project will purchase the important insurance through an owner-controlled insurance program (OCIP). This eliminates the necessity for a contractor to purchase insurance. The coverage given by this insurance applies to all subcontractors and contractors on the project.

This means that subcontractors will actually want to deduct the cost of insurance that they would somehow remember for a bid since they will currently be insured under the owner-controlled insurance program. This makes their bid more affordable and allows them to be more competitive in pricing.

It additionally benefits the company running the project as purchasing insurance through an OCIP will for the most part wind up costing not exactly hiring contractors that need to purchase their own insurance, incorporating the insurance cost in their bids.

Benefits and Disadvantages of Bid Deduct


Companies might purchase insurance through an OCIP on the grounds that it can reduce the cost of bids from contractors. This is on the grounds that the company will require the bids made by contractors to consider the insurance coverage that it is being offered by the project management company.

In an OCIP, the project management company requires the contractor to follow a bid deduct methodology, in which the costs of giving the insurance coverage are deducted from the bid that the contractor makes for the project.

On the off chance that the project management company can secure a lower premium from OCIP suppliers then acknowledging cost savings will be able. Bid deductions reduce the markup that contractors apply to their bids that connect with the contractor giving its own insurance coverage.

Project management companies that require bid deduction can bear benefitting even more assuming they are able to get a favorable loss experience. A company can achieve this by decreasing the risks that contractors face while on the worksite and guaranteeing that contractors are following all of the required safety procedures.


Downsides to utilizing bid deduct incorporate the increased complexity associated with overseeing convoluted bids, as well as haggling with insurance companies.

Companies must take care of any outstanding concerns on OCIPs before setting out on a relationship with one. Companies can be underinsured if not exactly honorable OCIPs offer altogether low prices while giving insignificant insurance coverage.

Regulatory bodies have looked for measures to safeguard companies through such practices, by specifying subtleties for all variables, including least project size, coverage standards, and the rights of the contractors.

A genuine and efficient OCIP gives many benefits, which incorporate coverage that covers a wide cluster of areas, tiering of coverage limits for all contractors, dealing with one issuer for claims, as well as a statute of rest.

Illustration of Bid Deduct

Assume a construction project has estimated hard costs of $100,000. Utilizing traditional practices, the cost estimate for insurance is $10,000, meaning 10% of the overall cost.

The project management company can reduce overall costs by giving its own insurance plan at an estimated price of $6,000 rather than hiring contractors that would need to buy their own insurance, remembering it for their bid for the project, in which it might amount to higher than $6,000.

The plan comprises of two parts: fixed expenses (counting overhead expenses, commissions, and taxes) and retained losses (as deductibles paid by contractors and subcontractors). The project management company's reductions are accomplished by guaranteeing a safe workplace and decreasing costs associated with workers' compensation and commercial general liability (CGL). Hence, the project management company can save money on overall insurance costs through bid deductions in an OCIP.


  • Generally, bid deductions reduce the costs that contractors apply for things like overhead and profit.
  • Several states have laid out rules, for example, least project size and coverage standards, to safeguard participants in owner CIP programs.
  • Bid deduct is an owner-controlled insurance program (CIP) feature that deducts costs remembered for a bid, like workers' compensation and general liability, before making the last payout.
  • Bid deducts ordinarily allow companies to acknowledge cost savings by giving their own insurance coverage to contractors in a project.