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Why You Need Insurance Specific to Your GovCon Business

Written by Michael Cronin on

Government contracting can prove lucrative, especially if you offer high-demand or specialized services. Yet, if you do business with the US federal government, you must meet insurance requirements that can be quite different from those imposed on other companies. With a deeper understanding of these obligations, you can ensure you are protecting your business properly while meeting your government contract insurance requirements.

The Cost of Doing Business

No matter what type of work your govcon business performs — from IT, consulting, and other professional services to construction and other fields — you must comply with a variety of insurance requirements. In fact, an inability to secure the necessary coverage can keep you from obtaining government work. 

If you are unable to produce proof of coverage when a government agency solicits bids or eventually awards the contract, you cannot proceed as the supplier of choice. The federal agency cannot issue a task order without evidence that you have met the insurance obligations. And if you fail to maintain the required insurance, you could find your contract cancelled and face financial penalties. In the worst-case scenario, if you experience a loss during the contract period and you are not adequately protected, you could be on the hook for significant out-of-pocket expenses you might not be able to afford. 

Where many govcon businesses run into trouble is assuming the insurance requirements set forth by the government will fully protect them. But that is far from the truth. These requirements should be considered bare bones — and not nearly enough to protect against many common exposures.

Going Beyond FAR

Any business that works with the federal government is familiar with FAR (Federal Acquisition Regulation), which is the primary regulation for all executive agencies to use in acquiring supplies and services with appropriated funds. FAR is issued under joint authority of the Department of Defense, the General Services Administration, and NASA, for the purpose of publishing uniform policies and procedures for the procurement process.   

There are a number of common misconceptions about FAR. For instance, other federal authorities do follow FAR (such as the Department of Commerce and the Transportation Security Administration, among others), along with the Prize and Challenge model, which seeks out innovative solutions from non-traditional contractors. And while FAR is perceived by some as slow and difficult to work with, in our experience this entity welcomes questions and is happy to work with independent brokers to ensure that government contractors are clear on their insurance obligations. 

That brings us to perhaps the biggest misconception about FAR. Government contracting businesses often mistakenly believe that if they meet the insurance obligations set forth by FAR, they are adequately protected. But meeting contractual requirements does not always equate to protecting your assets sufficiently. That is especially true with FAR, since most of the requirements are the bare minimum, with limits that will not come close to covering you in the event of a loss. For example, the typical general liability (GL) limit under FAR is only $500,000.

Special Considerations for Primes vs. Subs

Aside from the FAR requirements, your contractual insurance obligations will depend on whether you are the prime contractor or a subcontractor on the project.

Generally, a prime will impose more robust insurance requirements on the subcontractor than the government imposes on them. And since subcontractors are often smaller entities than the primes that hire them, meeting those requirements can prove challenging or nearly impossible in terms of coverage availability and premiums. Sometimes, the prime is attempting to require coverage limits that exceed the sub’s annual revenues. It is worth negotiating the contract to determine if you can get the liability limit requirements reduced, for example. (Learn more about prime vs sub insurance requirements in our government contracting FAQs blog.)

Avoiding the Common Pitfalls

The key to ensuring you are adequately protected when working with the federal government is to apply the same principles you would no matter what sector you operate in: Review your risks, identify your likely exposures, and obtain the best possible insurance solution. This approach is particularly important if your business has exploded virtually overnight due to a massive contract award. All of the sudden, you must scale up rapidly to meet the contract requirements — and that has the potential to change your risk profile dramatically.

It is equally important to avoid taking on risk unknowingly by doing work outside of your SOW, which is a common request. For example, say your staff is performing IT work in a server room, and the contracting officer (CO) asks if they will replace a few ceiling tiles. Now you are doing work “at height,” which your insurer did not know about and will deem much riskier than the IT work. If you signed a statement that you are only providing IT services, and your employee is injured while replacing the ceiling tiles, the carrier might deny the claim due to misrepresentation.

Coverages to Consider

While every situation is unique, there are several insurance solutions that most government contracting businesses need regardless of contractual requirements. Depending on the nature of your work, these can include: 

  • Defense Base Act (DBA) coverage, which is equivalent to workers’ compensation insurance for govcon employees who work OCONUS.
  • Contractor’s all-risk (CAR) insurance, which is similar to a builder’s risk policy, but without the usual exclusion for acts of war, for example.
  • War risk insurance, which protects against losses from hazards like invasions, riots, military coups, and acts of terrorism, among others. 
  • US Longshore and Harbor Workers (USL&H) insurance. 
  • Foreign general liability (FGL) insurance for events that occur outside US borders. 
  • Coverage for third-country nationals (a local national working on a US government site in a country other than their own). 
  • Medical malpractice (MedMal) insurance for organizations that provide healthcare services.
  • Third-party crime coverage, to insure against your employees stealing from your government client. 
  • Broad business travel insurance (BTA) that includes out-of-country medical, evacuation, and kidnap and ransom coverage.

B.F. Saul Can Help Protect Your GovCon Business

With extensive experience serving government contractors, B. F. Saul Insurance is ideally suited to help identify your risks, find the best coverage, and negotiate with insurance underwriters on your behalf.

We also routinely review government contracts for our clients to ensure they understand their insurance obligations and they’re confident they can meet them while maintaining profitability. We can even review contract language and forecast premiums for the required coverage before you submit a bid, giving you the flexibility to adjust it based on known overhead costs. And if a CO asks you to perform work outside your SOW, we have the expertise and market presence to help you pivot fast while staying protected.

Contact B.F. Saul Insurance to learn how we can help reduce and mitigate risks for your government contracting 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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