With the end of the United States Army Corps of Engineers (USACE) DBA program on September 30, 2013, contractors with USACE DBA policies have been faced with placing their DBA Insurance in the open market. Because of the difference in the way USACE program policies were issued in comparison to how policies are rated and issued on the open market, a number of issues have come to light.
Under the USACE DBA program, contractors were not required to submit a Statement of Work (SOW) as part of the application process. DBA policies were issued upon completion of a standard application, which was reviewed by the insurance broker to confirm selection of the correct rate class based on the type of work to be done.
In the open market the DBA application process isn’t as simple. There is more scrutiny by underwriters when rating and issuing policies, and a Statement of Work is required to give underwriters a better assessment of the project and all the services required as part of the contract. As a result of this requirement, Underwriters are discovering new exposures upon reviewing the SOWs.
Services “Outside the Wire”
One new risk brought to light is the idea of contracted employees performing services “outside the wire”―working off base in war zones, either with or without military security protection (i.e. engineering firms sending their engineers off base to an IED* explosion site to evaluate the affects of the explosion on military equipment). Clearly the risk of injury or death to these employees is increased when they are sent into dangerous territory without proper security.
Many DBA underwriters will not provide coverage for any type of off-base exposure, whether military security is provided or not. If the SOW is not explicit regarding what is required as part of the job, or if there is any uncertainty whatsoever, it’s likely that the underwriters will decline offering coverage altogether.
Descriptions of Work
Work done by engineers is affecting the rates that are set on a contract. Under the USACE program, engineers were classified under the service rate, which was set at $4 per $100 of payroll, and specific duties and services performed by the engineers were not fully defined. In the open market, however, responsibilities are defined for all employees in the Statement of Work, including complete descriptions of work to be completed. An example is modifying radio signal jamming equipment and mounting it to vehicles . This enhanced description resulted in increased rates for engineering services, upwards of $8 per $100 of payroll.
Inaccurate Payroll Adjustment
A trend occurring in the open market is the downward adjustment of payroll by contractors to avoid paying additional DBA premium out-of-pocket. For example: a contractor with a USACE DBA policy with a construction rate of $4.25 per $100 for work to be done after September 30, 2013 (the termination date of the USACE DBA program) must re-market their contract to obtain DBA coverage. Rates on the open market for construction services range from $10-$15 per $100 depending on the type of services, country of performance and the number of employees performing the work. With the significant rate increase, the DBA premium for the remaining work under this contract is now higher than what was included, and reimbursable, under the original contract, leaving additional DBA premium due. Contractors are attempting to avoid this situation by reducing the amount of payroll reported.
However, inaccurate payroll reporting is not the correct way to handle this situation. Instead, contractors should:
- Determine what the new open market DBA premium will be for the remaining period of performance on the contract, based on true payroll estimates
- Contact the USACE Contracting Officer to request that the contracts be modified to accommodate the increase in DBA premium, and that is reimbursable, eliminating any out-of-pocket DBA premium
The LATITUDE DBA Insurance program, the DBA Insurance broker for Allied World Assurance, is a great source for DBA Insurance. Our team has a deep understanding of the complexities and unique business needs associated with government contracts, and can help contractors make sense of the anomalies associated with the end of the USACE DBA program. Contact LATITUDE DBA Insurance today―we’re here to assist contractors in creating an insurance plan that protects their business and their employees against all their overseas exposures.
*Improvised Explosive Device