Insurance rarely gets attention in a proposal until someone asks for proof of coverage. In the fourth quarter, that request can arrive with an award, and a missing coverage or an endorsement that takes weeks to obtain can delay the start of work. A mid-year look at how federal contracts handle insurance, and a conversation with your broker before summer awards land, can prevent that problem.
Where the requirements come from
FAR Part 28 addresses insurance along with bonds. It describes the kinds of insurance that may be required, sets minimum amounts for certain coverages on some contracts, and provides clauses that put those requirements into the contract. Agency supplements and individual solicitations may add their own requirements. The general approach differs by contract type:
- Fixed-price contracts generally do not require specific insurance, except in situations such as work performed on a government installation, where a standard clause requires certain coverages.
- Cost-reimbursement contracts generally require the contractor to carry specified insurance, and insurance costs are treated under the cost principles.
- Solicitation-specific requirements may call for additional coverage tied to the work, such as professional liability for certain services or coverage for vessels or aircraft.
Coverages commonly required
For work on a government installation, the clauses commonly address workers’ compensation and employer’s liability, general liability for bodily injury, and automobile liability for vehicles used in performance. Minimum amounts are stated in the regulation or the contract and may differ by agency, so read the clause and any fill-ins carefully. Contracts may also require that the contracting officer be notified before a policy is cancelled or materially changed, and that similar requirements be included in subcontracts for work on government property.
Work performed overseas brings a distinct requirement. The Defense Base Act, enacted in 1941, extends workers’ compensation coverage to employees working outside the United States on many government contracts, and covered contractors must obtain that insurance. If you are considering overseas work, raise it with your broker early, since not every carrier writes this coverage.
What to confirm before you bid
- Which insurance clauses appear in the solicitation, including any agency-specific language
- The minimum limits required and whether your current policies meet them
- Whether any coverage must be in place before work begins and how proof must be provided
- Whether subcontractors will need the same coverage, and how you will verify it
- The cost of any additional coverage, so it is reflected in your price
Insurance, cost and risk
Insurance is a cost of doing business, and on fixed-price work it belongs in your indirect rates or your direct price as your accounting practices dictate. On cost-type contracts, insurance costs are subject to the allowability rules of FAR Part 31, which include specific provisions for insurance and indemnification. Self-insurance is possible in some circumstances, but it comes with its own approval requirements.
Beyond what a contract requires, consider what your firm needs. Federal work carries risks that standard commercial policies may not address in the way you expect, such as cyber incidents involving government information or professional errors in technical deliverables. Talk with an insurance professional who understands government contracting, and read the current clauses in FAR Part 28 at acquisition.gov before you rely on any summary, including this one.