E9-6808. Defense Base Act Insurance Acquisition Strategy; Questions for Industry and Other Interested Parties

AGENCY:

Defense Acquisition Regulations System, Department of Defense (DoD).

ACTION:

Request for public input.

SUMMARY:

DoD is soliciting information and feedback from defense contractors, insurance industry representatives, and others, on DoD's requirement to develop a comprehensive acquisition strategy for Defense Base Act insurance that will address provisions of Section 843 of the National Defense Authorization Act for Fiscal Year 2009. Responses must be limited to no more than 20 pages.

DATES:

Submit written comments to the address shown below on or before April 3, 2009.

ADDRESSES:

You may submit comments using any of the following methods. E-mail is the preferred method.

○ E-mail: [e-mail].

○ Fax: [phone].

○ Mail: Deputy Director, Defense Procurement and Acquisition Policy (Cost, Price, and Finance), ATTN: Ms. Teresa Lawson, 3062 Defense Pentagon, Washington, DC 20301-3062.

○ Hand Delivery/Courier: Deputy Director, Defense Procurement and Acquisition Policy (Cost, Price, and Finance), ATTN: Ms. Teresa Lawson, Crystal Square 4, Suite 200A, 241 18th Street, Arlington, VA 22202-3402.

FOR FURTHER INFORMATION CONTACT:

Ms. Teresa A. Lawson, by telephone at 703-602-2402, or by e-mail at [e-mail].

SUPPLEMENTARY INFORMATION:

DoD is soliciting information and feedback from defense contractors, insurance industry representatives, and others, on DoD's requirement to develop a comprehensive acquisition strategy for Defense Base Act insurance that will address the following provisions of Section 843 of the National Defense Authorization Act for Fiscal Year 2009 (Pub. L. 110-417):

The Secretary of Defense shall adopt an acquisition strategy for insurance required by the Defense Base Act (42 U.S.C. 1651 et seq.) which minimizes the cost of such insurance to the Department of Defense and to defense contractors subject to such Act * * * The Secretary shall ensure that the acquisition strategy adopted * * * addresses the following criteria: (1) Minimize overhead costs associated with obtaining such insurance, such as direct or indirect costs for contract management and contract administration. (2) Minimize costs for coverage of such insurance consistent with realistic assumptions regarding the likelihood of incurred claims by contractors of the Department. (3) Provide for a correlation of premiums paid in relation to claims incurred that is modeled on best practices in government and industry for similar kinds of insurance. (4) Provide for a low level of risk to the Department. (5) Provide for a competitive marketplace for insurance required by the Defense Base Act to the maximum extent practicable. * * * In adopting the acquisition strategy * * * the Secretary shall consider such options (including entering into a single Defense Base Act insurance contract) as the Secretary deems to best satisfy the (five aforementioned) criteria * * *

1. Policy Options

Under current law and DoD regulations, generally contractors performing work outside the United States are required to have Defense Base Act (DBA) insurance to provide workers' compensation benefits for employees, unless the requirement has been waived by the Department of Labor (DoL). To meet the requirement of Section 843 of the National Defense Authorization Act for Fiscal Year 2009, DoD is considering all options for its acquisition strategy and welcomes comments highlighting the advantages and disadvantages of any of a non-exclusive set of options, which includes but is not limited to: (1) A single-source contract awarded on a competitive basis issued and administered by DoD; (2) a multiple-award contract awarded on a competitive basis issued and administered by DoD; (3) no change (i.e., contractors are required to obtain appropriate DBA insurance on their own); (4) Government self-insuring for DBA losses while contracting to the private sector for program administrative and claims processing; (5) Government self-insuring with DoD and DoL employees performing all administrative and claims processing; (6) a GSA schedules-type set of maximum rates, which may include awards based on geographic location of the work to be performed and/or based on the nature of the work to be performed, with competition for each major contract (a vehicle structured similar to state-side workers compensation policies); (7) a pre-qualified list of DoD-approved DBA carriers and brokers/agents who meet a predetermined set of criteria/qualifications to provide DBA insurance from which contractors would be required to obtain appropriate DBA coverage; (8) contractors self-insuring either on an individual basis or by pooling of contractors, including information on how a panel/pool participant would avoid adverse selection; or (9) other alternative recommendations not listed above.

DoD would appreciate responses to the following questions pertinent to consideration of the various acquisition options:

a. Cost Drivers. What are the main cost drivers of DoD's DBA expense? How can those cost drivers be better controlled or mitigated?

b. Main Stakeholders. Identify the main stakeholders in DBA. How should DoD (and DoL or others if applicable) orchestrate communications and involvement to ensure all stakeholder interests are represented?

c. Claims Management. How critical are claims management practices to controlling ultimate DBA costs? Drawing on the best practices of claims management (whether currently applied to DBA claims or not), what should be required to address claims promptly, fairly, and efficiently to ensure good service and care and proper treatment for workers serving those who serve our country?

d. Technical Exhibits. What claims history or other information should DoD include in its technical exhibits to any solicitation to enhance competition?

2. Additional Questions Regarding Potential Policy Options

DoD would appreciate additional specific responses to the following questions citing pros and cons of the various alternatives:

a. Single Source DBA Contract. Regarding a potential single source contract (which would be awarded based on source selection procedures considering price, technical, management, and past performance criteria), would your insurance company be willing to bid on such a contract? Why or why not? For broker respondents, do you believe one or more insurance companies/brokers would be interested in bidding on a single source contract? Why or why not? Please provide insight into whether one provider could handle all claims associated with DoD's DBA insurance requirements for contractor performance overseas for U.S. citizens, foreign nationals, and third country nationals. Finally, please provide insight into the market implications of having only one source for DBA insurance for all of DoD.

b. Multiple-Award DBA Contract. Please provide your recommendations and rationale regarding the basis for dividing the multiple awards—by geographic location, by type of work performed (e.g., basic logistics support, technical services, security, construction), by military department or defense agency, by war zone versus non-war-zone, by dollar value of payroll involved and/or dollar amount of contract, to ensure DoD meets the criteria outlined in the National Defense Authorization Act (minimizing direct and indirect overhead costs associated with administering the program, minimizing insurance costs, etc.). Please consider the implications of pooling of like risks (or unlike risks) to minimize insurance costs to DoD.

c. Minimum Policy Amounts. Please provide your recommendations and rationale considering the options regarding minimum policy amounts of a single provider or a multiple award contract. If a multiple award contract were divided in part based on dollar value of payrolls/dollar value of contracts, what is the maximum threshold you would recommend be used as the basis for not having a minimum policy amount? Should DoD avoid dividing any multiple award contract based on dollar value to minimize the need for minimum policy amounts? Please keep in mind that DoD aims to not discourage small businesses from performing overseas work for DoD and any minimum policy amounts might inhibit that competition.

d. No Change (Contractors procure their own DBA coverage). If the current approach is retained, how can it be modified to be responsive to the five criteria outlined in Section 843 of the National Defense Authorization Act for Fiscal Year 2009?

e. Self-Insurance. If DoD elected to directly self-insure contractor DBA losses, what would be the relative pros and cons of contracted administration vs. “in-house” Government administration? Please provide comments regarding the pros and cons of contractors self-insuring either on an individual basis or by pooling of contractors. Recognizing that there are many variations of self-insurance, which do you believe are relevant for DoD to consider and why?

3. Specific Questions for Brokers/Carriers

In addition to the questions above soliciting information from all interested parties, DoD would appreciate additional responses from interested brokers and carriers to the following questions:

a. Experience. What is your experience in handling DBA insurance? For example, how many clients, years, and geography of experience, payroll exposure, and premium volume managed?

b. Competition. How do you suggest that Government ensure the broadest industry participation in establishing a DBA insurance acquisition strategy given a limited pool of qualified carriers and broker/agents?

c. Broker/Agent Role. What is the role of the insurance broker/agent in the open-market DBA insurance procurement process?

d. Rating Approach. What is your rating approach in light of the underwriting and service complications of insuring this long-tail catastrophic liability? In the absence of adequate loss history data to rate DBA coverage, what is the rationale/rating methodology you apply? How do you measure a contractor's risk mitigation/loss reduction results to reward the best performing contractors and minimize costs to the Government?

e. Data. Are you willing and able to provide aggregate loss and development information to include medical expenses, lost wages, reserves, adequate medical care/evacuation/infrastructure expenses, administrative costs, and other appropriate support services? Are you willing to provide the rate of return and amounts made on invested insurance premiums?

f. Retrospective Plans. Regarding establishing a program with rates that change based on overall program loss experience, what is your experience in structuring loss-sensitive rated DBA programs? Please provide suggestions regarding the potential structures of such retrospective rating plans.

g. Term Length. Regarding the length of any contract term for any of the policy options being considered, what term length of a contract would be reasonable (1, 3, or 5 years)? If more than a one-year term, could retrospective pricing be a reasonable approach based on the profit/loss ratio?

h. Subcontractors. Do you recommend that subcontractors obtain their own individual policies, or do you recommend that the prime contractor purchase the insurance for all its subcontractors (at all tiers)?

i. DBA Data. Please provide recommendations on how DoD can best collect, analyze, and act on relevant DBA data from various sources to optimize its understanding and tracking of DBA costs and trends and put DoD in the most favorable negotiating position.

j. Medical Care. Please provide data and analysis on the costs of finding sources of adequate medical care for countries where the standard of care is insufficient.

k. Contracting Entity. If DoD procures DBA coverage (vs. contractors procuring), should DoD be contracting with broker(s) or carrier(s) or some combination of the two?

l. Discounts. By including DBA insurance with other insurance coverage, what type of discount is typically obtained on DBA insurance?

m. Impact of Safety Record. How does a contractor's safety record affect insurance rates—does it have a significant impact? How much of a discount is normally offered for a good safety record?

n. Maximum Mandated DBA Rates. What is your position on DoD mandating maximum DBA rates based upon job description (classification), geography (e.g., Iraq vs. Germany) and loss experience? What would be your response to having to file your proposed rates with DoD for approval each year, based upon your own individual loss experience and trending?

o. WHA Claims. Please provide the percent of DBA claims that are initially believed to be War Hazard Act (WHA) claims. Please provide the percent of initial WHA claims that are later determined by DoL not to be WHA claims. How long on average does it take DoL to settle and reimburse the insurance carrier for WHA claims? Typically, does DoL pay the entire WHA claim amount the carrier submits—if not, what is the average percent?

4. Specific Questions for DoD Contractors

In addition to the questions in 1 and 2 above soliciting information from all interested parties, DoD would appreciate additional responses from DoD contractors to the following questions:

a. Current Practice. How do you acquire your DBA coverage today? Do you purchase insurance or are you an approved self-insurer for this coverage?

b. Purchased Insurance. If you purchase your DBA insurance, is it: (a) Acquired through a stand-alone insurance policy; (b) acquired through a multi-line insurance program with DBA coverage separately priced; or (c) acquired through a multi-line insurance program with DBA coverage not separately priced?

c. Supplemental Coverage. Do you supplement the standard DBA coverage for employees with medical assistance or additional life or disability coverage? Do you do so: (a) For all DBA covered employees; or (b) only for specific categories of employees? Are the premiums for any such coverage: (a) Paid for in full by the company; (b) paid for in part by the company and in part by the employee; or (c) paid in full by the employee?

d. Subcontractors. Do you recommend that subcontractors obtain their own individual policies, or do you recommend that the prime contractor purchase the insurance for all its subcontractors (at all tiers)?

e. Discounts. By including DBA insurance with other insurance coverage, what type of discount is typically obtained on DBA insurance?

f. Impact of Safety Record. How does a contractor's safety record affect insurance rates—does it have a significant impact? How much of a discount is normally offered for a good safety record?

Michele P. Peterson,

Editor, Defense Acquisition Regulations System.