The eligibility of Defense Base Act coverage for U.S. Government contracts is not always intuitive, as there are some government contracts that are procured under unique circumstances. Foreign Military Financing (FMF) or Foreign Military Sales (FMS) fall into that category.

Understanding the purpose of FMF/FMS military contracts

FMF/FMS programs are designed to acquire military articles, services and training that support the United States interest of national security and regional stability in areas where military operations are conducted. They are operated through the Defense Security Cooperation Agency (DSCA)—a Department of Defense Agency that manages and implements security assistance and security cooperation programs. The DSCA receives its funding and operates in accordance with the Foreign Assistance Act, an Act which promotes the economic development of foreign nations. The contracts are brokered by the U.S. Government directly with a “host nation” to negotiate military services for that nation. In such cases, the U.S. Government contact is responsible for connecting the contractor chosen to do the work with the host nation.

Are FMF/FMS military contracts eligible for DBA coverage?

Because FMF/FMS contracts are unique, there has been some question about the eligibility of the contracts for Defense Base Act coverage, specifically in regards to whether they meet the provisions as defined by the U.S. Department of Labor DBA statutes.

In order for a contract to be eligible for DBA coverage, the contract must be approved and financed by the U.S., as stated in the following U.S. Department of Labor statute.

DBA Section 42 U.S.C. Section 1651(a)(5) states a contract will be eligible if it meets the provision:

…approved and financed by the United States… or an agency thereof… to be performed outside the continental United States under the [Foreign Assistance Act]

To determine whether FMF/FMS contracts should be covered by DBA, we look back to the provision and can resolve that they are eligible, as they are “approved and financed by the United States”, as funded by the Foreign Assistance Act. Accordingly, it is the understanding of LATITUDE Global DBA Insurance that DBA does apply to FMF and FMS contracts. However, these types of contracts should always be reviewed by a DBA Attorney who can make a final determination and provide a legal opinion confirming whether or not the specific contract is eligible for DBA coverage.

As the DBA Insurance broker for Allied World Assurance, the LATITUDE DBA Insurance team has a deep understanding of the complexities of Defense Base Act coverage. Contractors seeking DBA coverage should contact LATITUDE DBA Insurance today―we’d be happy to assist in creating an insurance plan that protects both the business and its employees against all overseas exposures.