As a government contractor, you operate in a high-stakes environment where precision, compliance, and accountability are nonnegotiable. Every project must meet strict federal standards and withstand regulatory scrutiny. Those expectations expose your business to significant professional liability risks that can result in costly claims or contract disputes. The right insurance for government contractors protects your reputation, finances, and ability to secure winning bids.
What you will learn:
- What Are the Top Professional Liability Exposures for Government Contractors?
- Risk-Mitigation Tips for Government Contractors
- What To Do in the Event of a Claim
- FAQ About Professional Liability Insurance for Government Contractors
What Are the Top Professional Liability Exposures for Government Contractors?
Design and construction errors, where even minor miscalculations can lead to significant claims, are among the most common and costly exposures for government contractors.
Design and Construction Errors
Miscalculations, engineering flaws, or faulty specifications can lead to project delays or failures. Such errors often result in claims for negligence or breach of contract, especially when safety or performance standards are not upheld.
Technology and IT Failures
Software malfunctions, data breaches, or technical missteps in GovTech systems can expose your business to financial loss and compliance penalties. Professional liability coverage often overlaps with cyber protection to address these complex risks.
Negligent Advice or Misrepresentation
If your consulting or advisory services lead to an agency's financial loss, even unintentionally, you may face claims for errors or omissions. Government projects rely heavily on documented accuracy and expert judgment.
Contractual Shortfalls
Missed deadlines, incomplete deliverables, or unclear performance expectations can trigger breach-of-contract claims. Many federal contracts include "liquidated damages" clauses that increase the stakes for nonperformance.
Intellectual Property Claims
Developing software or creative assets for government use can create intellectual property conflicts. Claims of infringement or misappropriation are expensive and time-consuming, even when they stem from oversight rather than intent.
Administrative or Disciplinary Actions
Investigations, ethics complaints, or whistleblower cases can put your business under intense scrutiny. These situations require a coordinated defense strategy and often involve specialized legal expenses.
Risk-Mitigation Tips for Government Contractors
Government contractors can reduce exposure and strengthen compliance by taking the following steps.
1. Secure Professional Liability Insurance
Protect your business from errors, omissions, and professional negligence. Most government contracts require proof of professional liability (errors and omissions, or E&O) coverage.
2. Review Contracts Thoroughly
Identify the mandatory insurance clauses and indemnity requirements before signing any contracts. Watch for language that may trigger uninsurable obligations.
3. Build a Comprehensive Insurance Program
Supplement E&O coverage with related policies, including:
- Cyber liability (for sensitive data and GovTech systems)
- Employment practices liability
- Directors and officers (D&O) insurance
- Defense Base Act (DBA) coverage for overseas work
4. Strengthen Quality Control
Implement internal review procedures and mitigation endorsements to identify potential errors early and minimize the severity of claims.
5. Use Clear Contractual Language
Avoid including broad "duty to defend" clauses and other vague indemnity terms, as they can increase your exposure or conflict with policy limits.
For more insights, refer to Specific Insurance Requirements for Government Contractors: Why One Size Doesn't Fit All.
What To Do in the Event of a Claim
- Report quickly: Notify your insurer and legal counsel as soon as you suspect a claim.
- Document everything: Keep copies of contracts, project records, and all communications.
- Cooperate fully: Work with claims adjusters and defense counsel assigned under your policy.
- Mitigate losses: Take immediate steps to correct or contain issues and reduce damages.
Sahouri's advocates help government contractors navigate the claims process, coordinate with carriers, and minimize long-term premium impacts through proactive, consulting-based guidance.
Learn more in Navigating Emerging Insurance Challenges for Government Contractors.
Bottom Line
Professional liability exposures are unavoidable in government contracting, but with the right strategy, you can manage them.
Contact Sahouri's team of advocates to align your insurance program with federal requirements while maintaining resilient and compliant operations.
FAQ About Professional Liability Insurance for Government Contractors
What is not covered by professional liability insurance?
Professional liability policies cover negligence and financial losses from your professional services but exclude intentional acts, bodily injury, property damage, or non-financial claims.
Why is professional liability insurance critical for government contracts?
Professional liability insurance is often required for federal contracts, protecting against disputes from performance issues, errors, or advice that cause client damages. Without it, contractors risk significant financial and reputational harm from legal claims.
Do government contractors need more than one type of liability insurance?
Yes, depending on the specific scope of work outlined in your government contracts, you may also need additional specialized insurance coverage. These could include:
- Cyber liability insurance to protect against data breaches and other digital risks
- Employment practices liability insurance, which covers claims related to wrongful termination, discrimination, and harassment
- Defense Base Act (DBA) coverage to provide workers' compensation benefits to employees working on U.S. government contracts abroad
Claims-made versus occurrence: What's the difference?
Professional liability insurance is typically claims-made, requiring an active policy at both the incident and claim-filing times for coverage. Occurrence policies protect you for incidents that happen while the policy is active, no matter when you file a claim, which is helpful for those retiring or switching jobs because it covers past work without needing to keep paying premiums.
