[Federal Register Volume 74, Number 57 (Thursday, March 26, 2009)]
[Notices]
[Pages 13197-13199]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-6808]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System


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.

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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.
    [cir] E-mail: [email protected].
    [cir] Fax: 703-602-7887.
    [cir] Mail: Deputy Director, Defense Procurement and Acquisition 
Policy (Cost, Price, and Finance), ATTN: Ms. Teresa Lawson, 3062 
Defense Pentagon, Washington, DC 20301-3062.
    [cir] 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 [email protected].

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

[[Page 13198]]

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

[[Page 13199]]

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.
 [FR Doc. E9-6808 Filed 3-25-09; 8:45 am]
BILLING CODE 5001-08-P