Executives in government contracting must have adequate insurance coverage to ensure everything goes smoothly on their end. Services to the U.S. government is a huge market. The biggest contractor of goods and services on the planet, the federal government, purchases over $500 billion in contracts annually. Furthermore, more than 23% of its contract budget is allotted to small businesses. During a typical fiscal period, at least 25,000 federal contracts are available for bidding. State and local governments offer similar opportunities as well.
But government contracts are not easy to secure. Apart from the stringent procedural requirements, contractors need to ensure their ability to meet their clients’ demands. They should understand the bidding process thoroughly and establish solid working relationships with various agencies.
And then, there are the insurance requirements to consider. Executives and managers should adhere to insurance guidelines and regulations to land these contracts and establish themselves as reliable U.S. government contractors.
What You Will Learn
- General Insurance Requirements
- Requirements for Insurance Cancelation or Changes
- Insurance Against Loss or Damage to Government Properties
- Insurance for Fixed-Price Contracts
- Insurance for Cost-Reimbursement Contracts
General Insurance Requirements
All government contracts subject to Cost Accounting Standard (CAS) 416 require contractors to be insured, either by self-coverage or purchased coverage. This is intended to cover risk exposures that contractors typically face.
There are some exceptions to this rule. For instance, insurance may not be necessary if the government agrees to indemnify the contractor under certain conditions or if the contract frees the contractor of liability for losses or damages caused to government property.
Contractors are expected to provide insurance for workers’ compensation. Furthermore, the government may disapprove insurance it deems does not serve its interest.
Requirements for Insurance Cancelation or Changes
Government contractors may not cancel or change their insurance coverage without prior approval by the associated government agency.
Although the government requires contractors to obtain insurance, all policies should stipulate that material changes or cancelations affecting the government’s interest will be ineffective unless these are detailed in a written notice. This notice should be submitted to the contracting officer of the government agency in question.
If the contractor obtains coverage via self-insurance, coverage should not be reduced or changed unless these are approved by the contracting officer.
Insurance Against Loss or Damage to Government Properties
Contractors will have to obtain insurance that safeguards against losses or damage to government property. This coverage may be provided by specific policies, or they may be included in the risks detailed in an existing policy. In any case, the policies should clearly document the government’s interest in the property in question.
Insurance for Fixed-Price Contracts
The U.S. government doesn’t usually concern itself with the contractor’s insurance with fixed-price contracts. But it may have specific insurance requirements if the contractor:
- Is mainly engaged in government work
- Has a separate operation engaged mainly in government work
- Is contracted for a project that involves government property
- Performs work on a government installation
Insurance requirements may also apply if the government assumes the risks for which contractors typically obtain insurance.
Insurance for Cost-Reimbursement Contracts
Specific types of insurance are required for cost-reimbursement contracts or subcontracts subject to the extended terms of the primary contract. Minimum liability amounts will also be specified in such arrangements.
Contractors are required to have the following insurance coverage:
- Workers’ compensation
- Employer’s liability
- General liability
- Property damage liability (may be necessary only under special circumstances)
- Automobile liability
- Aircraft public and passenger liability
- Vessel liability