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Insurance for Government Contractors: Your Most Frequently Asked Questions Answered

Written by Michael Cronin on

Working with the US federal government can prove lucrative, especially in certain industries. But as with all sectors, it presents unique risks and exposures that you need to protect against. 

Based on our experience working with government contractors across all business types and sizes, the business insurance specialists at B. F. Saul Insurance have learned what’s typically on the minds of government contracting (govcon) businesses when it comes to reducing their risks with the proper insurance. These are the frequently asked questions (FAQs) we commonly hear.

I’ve met the FAR requirements. Is that enough?

Meeting the Federal Acquisition Regulation (FAR) insurance-related requirements is considered the bare minimum, especially since the FAR limits of insurance are quite low. Depending on the nature of your govcon business and your specific contractual obligations, you’re likely to need more protection through proper insurance.

Is my govcon business immune from liability?

This is a common misconception and a complex issue. The short answer is: You must meet multiple criteria to qualify for immunity from liability, but those criteria are primarily relevant for companies that manufacture end products to very exacting specifications. For example, if you manufacture a component that fully meets the contract’s specs, and the government agency later finds that it didn’t perform as they expected, you may be immune from a lawsuit. But for most services businesses, where performance is less black-and-white, immunity rarely applies. 

Though the government is much more likely to pull a contract than to sue the contractor, if a lawsuit IS filed it can have catastrophic consequences. That makes it all the more critical to secure the proper insurance coverage.

What factors will influence my govcon insurance premiums?

The government contracting sector is large and diverse, from construction to janitorial services, IT services, linguistics, cybersecurity, and many more products and services. The nature of your company’s work is one of the greatest drivers of your risk exposure, which affects your insurance rates.  

Contractors that work on systems or equipment that is expensive to insure or has a high likelihood of catastrophic failure, and those that perform work that carries a high risk of injury, can expect their insurance rates to be higher. In setting your worker’s compensation insurance rates, underwriters consider the type of work, along with your revenues, payroll, and number of employees. And if you have employees working outside the continental US (OCONUS), that introduces an additional layer of risk that requires specific insurance coverages and higher rates in some cases (as discussed in more detail below). 

An independent insurance advisor will understand what the insurer’s underwriters need to know to quote your coverage accurately.

How do the insurance requirements differ for a prime contractor vs. a subcontractor?

A prime contractor to the federal government typically has few contractual insurance requirements. Worker’s compensation is required for all primes, and those that meet the criteria must also meet FAR requirements.

The insurance obligations are more complex and stringent for government subcontractors. The prime contractor is likely to include more stringent (and sometimes onerous) insurance requirements into the contract in an attempt to shift some of the risk. That makes it essential to review the associated insurance obligations with an experienced independent broker before entering into an agreement with a prime contractor.

If the requirements are too onerous or costly to meet, or you’re unable to secure the necessary limits, it may not be profitable or even feasible to accept the contract. One subcontractor bid on work outside its core business, not realizing it involved higher risk. Only after signing an agreement with the prime contractor did the subcontractor discover its worker’s compensation rates would be 10 times higher than the company was accustomed to paying. An independent broker can identify potential land mines like these and guide you in negotiating policy limits or even getting irrelevant insurance requirements struck from the contract.

What insurance considerations are involved when govcon employees work OCONUS?

When a govcon business has “boots on the ground,” especially OCONUS, the risks are likely to be higher. In those cases, you’re required by law to purchase Defense Base Act (DBA) coverage, which functions much like worker’s compensation does in the private sector but is designed for govcon employees who work outside the US. Be aware: As soon as your plane’s wheels leave the ground or you set foot on a marine dock, you’re considered OCONUS from an insurance perspective. 

The proper suite of business travel coverages is also a must—not just for out-of-country medical coverage, but also for evacuation in the event of political unrest or war, and kidnap and ransom coverage, including “express” coverage. That latter covers unique situations, such as getting abducted, driven to the nearest ATM, forced to drain your available funds, and then being left. You’ll also want to contract a company that can help employees with the logistics of an evacuation if necessary. And when purchasing out-of-country medical insurance, look for a policy that covers transportation to quality medical services within a reasonable distance. In cases of a medical emergency, you’ll want the option of being treated on a base like Ramstein in Germany, for example, as opposed to enduring the delays of traveling back to the US.

What pitfalls should I look out for when protecting my govcon company against risk?

One of the biggest mistakes is agreeing to perform work that falls outside your area of specialty or isn’t included in your contract. For example, one govcon business was hired to provide IT services for a government agency’s servers. Mid-project, the contractor was asked to replace floor tiles in the server room at the same time. It seemed like a simple request, but it changed the risk exposure entirely. The worker’s compensation rates are much higher for a flooring contractor vs an IT contractor, but the policy wasn’t written with that in mind. If one of the employees was injured while working on the flooring, the carrier could have disputed the claim.  

Before agreeing to perform add-on services, consultant with an independent insurance advisor that has experience helping govcon businesses avoid and mitigate risk.

How can an independent broker help protect my govcon business?

An independent insurance advisor operates separate from any carrier, so they can provide objective guidance and advice, always with your best interests in mind. A broker that has extensive experience working with government contractors can help identify your risk exposures, find the best coverage, coordinate and negotiate with underwriters on your behalf, and recommend ways to reduce and mitigate your risks. They can also review any contracts you’re considering, to ensure you don’t inadvertently raise your risks to a point where they’re too costly or not feasible to obtain coverage for.  

The business insurance specialists at B. F. Saul Insurance understand the exposures that government contractors are likely to encounter and the best ways to reduce your risk based on the nature of your work.

Learn what to look for if you’re ready to team up with an independent insurance advisor.
Then contact B. F. Saul Insurance to learn how we can help reduce and mitigate risks for your govcon business.
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About The Author

Michael Cronin is a Vice President in B. F. Saul Insurance’s Commercial Lines division with over 20 years of experience in the insurance industry. He is responsible for business development and overall client service delivery, with extensive experience working with clients in the real estate, non-profit, government contracting, and professional services industries.

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