What Is Bid Deduct?

Bid deduct refers to when contractors' bids for a project exclude the cost of providing workers' compensation, general liability, and excess 澳洲幸运5官方开奖结果体彩网:liability insurance because insurance is already provided by the owner of the project through an owner-澳洲幸运5官方开奖结果体彩网:controlled insurance program (CIP). The bid🔯 deduct methodology will reduce the amount a contractor bids for a project as they no longer have to include the cost of insurance.

Bid deduct is also known as insurance credit.

Understanding Bid Deduct

In many cases. a contractor or subcontractor purchases 澳洲幸运5官方开奖结果体彩网:insurance that covers injuries to its employees while they are on the job. In some cases, especially with lar𓃲ger projects, the company managing the project will purchase the necessary insurance through an owner-controlled insurance program (OCIP). This removes the necessity for a contractor to purchase insurance. The coverage provided by this insurance applies to all subcontractors and contractorꦿs on the project.

This means that 澳洲幸运5官方开奖结果体彩网:subcontractors will be able ๊to deduct the cost of i༺nsurance that they would othe🐬rwise include in a bid because they will already be insured under the owner-controlled insurance program. This makes their bid less expensive and allows them to be more competitive in pricing.

It also benefits the company 𝄹running the project as purchasing insurance via an OCIP will usually end up costiꦐng less than hiring contractors that have to purchase their own insurance, including the insurance cost in their bids.

Advantages and Disadvantages of Bid Deduct

Advantages

Companies may purchase insurance through an OCIP because it can reduce the cost of bids from contractors. This is because the company will require the bids made by contractors to take into account the 澳洲幸运5官方开奖结果体彩网:insurance coverage that it is being offered by the 澳洲幸运5官方开奖结果体彩网:project management company.

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

If the project management company can secure a lower premium from OCIP providers then it will be able to realize cost savings. Bid deductions reduce the markup th⭕at contractors apply to their bids that relate to the contract𒉰or providing its own insurance coverage.

Project management companies that require bid 澳洲幸运5官方开奖结果体彩网:deduction ca⛎n stand to benefit even more if they are able to obtain a favorable loss experience. A company can accomplish this by reducing the risks that contractors face w💝hile on the worksite and ensuring that contractors are following all of the required safety procedures.

Disadvantages

Drawbacks to using b♏id deduct include the increased complexity associated with managing complicated bid🉐s, as well as having to negotiate with insurance companies. 

Companies must do their due diligence on OCIPs before embarking on a relation💯ship with onౠe. Companies can be underinsured if less than honorable OCIPs offer significantly low prices while providing minimal insurance coverage.

Regulatory bodies have sought measures to protect companies through such practices, by stipulating details for all variabl♏es, including minimum project size, coverage standards, and the rights of the contractors.

A legitimate and well-organized OCIP provides many benefits, which include coverage that covers a wide array of areas, tiering of coverage limits for all contractors, dealing with one issuer for claims, as well as a statute of repose.

Example of Bid Deduct

Suppose a construction project has estimated hard costs of $100,000. Using traditional practices, the cost estim💧ate for insurance is $10,000, meaning 10% of the overall cost.𓆉

The project management company can reduce overall costs by providing its own inꦛsurance plan at an estimated price of $6,000 as opposed to hiring contractors that would have to buy their own insurance, including it in their bid for the project, in which it may amount to higher than $6,000.

The plan consists of two components: fixed expenses (including overhead expenses, commissions, and taxes) and retained losses (in the form of 澳洲幸运5官方开奖结果体彩网:deductibles paid by contractors and subcontractors). The project management company's reductions are achieved by ensuring a safe work environment and reducing costs associated with workers' compensation and 澳洲幸运5官方开奖结果体彩网:commercial general liability (CGL). Thus, the project manage🐠ment company can save on overall insurance costs through bid deductions in an OCIP.