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
Finance allah shmoop what is spread to treasuries All right
all right close that play bond magazine there people The
answers are all right here Spread to treasuries is not
a type of you know art photo but rather it's
an indication of risk associated with a given debt or
bond offering In the investing world Everything is calculated as
some additional premium or additional cost or additional capital rental
percentage all tact on to the safest investment in the
world Things from the us treasury like t bills and
bonds stuff like that from treasury We'll think about it
like you're going to a restaurant looking at the dinner
salad there for three bucks It's the cheapest thing on
the menu if you wanted a steak Well that state
costs fif eighteen dollars but it's a spread or premium
to the dinner salad of twelve bucks right Three bucks
for the south and you'd have to add twelve from
state prize You get stick And if you really wanted
to just use smaller numbers so that your customers would
have the illusion that they were paying fewer box for
dinner well you could describe everything in your restaurant as
some spread to dinner salad such that this medium rare
rib eye was in fact simply a spread to salad
or premium of twelve bucks Even though you're paying fifteen
anyway Us treasuries air broadly considered to be the safest
bond bet in the world at least today until china
or robots or both take everything over So when a
bond offering is made it is priced relative to treasuries
in the same way dinner items would be priced relative
to that dinner salad house salad there with the oil
and vinegar dressing that is if the bond offering is
for say ten years than the u s treasury ten
year paper that moment would be the foundational elements against
which their risk your debt instruments would then be priced
So let's say that today that ten year treasury paper
is yielding three point two percent Caterpillar tractor wants to
borrow a billion dollars to build their new tractor smelting
plant there then offered by investors one hundred twenty basis
point spread to treasuries debt deal to a fund that
factory with a billion dollars of debt What does that
mean It means that lenders are willing tto loan caterpillar
A billion dollars payable in ten years at three point
two percent per year plus one point two percent for
total interest of four point four percent interest per year
You know take it or leave it That's it So
to recap this is play bond magazine and this is
play But magazine reads it for the articles Really weird
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