Please provide responses to the questions below via email to Ms. Teresa
Lawson, Senior Procurement Analyst, Defense Procurement and Acquisition
Policy, Cost Pricing and Finance Directorate, at <Teresa.Lawson@osd.mil>
no later than March 18, 2009. Responses must be limited to no more than
20 pages. We prefer responses by email, since the mail process is slow.
However, if you would rather provide information by mail, it should be
addressed to OUSD(AT&L) DPAP/CPF (Attention: Teresa Lawson) 3062 Defense
Pentagon, Washington, DC 20301-3062. Please notify Ms. Lawson by email
if you are sending your response to the Pentagon address, or if you
would like to make arrangements to hand deliver your response. Ms.
Lawson can be reached at (703) 602-2402.

**[Background]{.underline}**

The Department of Defense (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 2009 National Defense Authorization Act: "*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]{.underline}

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 statutory requirement of the 2009 Act, 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 or Basic Ordering Agreement (BOA) awarded on a
competitive basis issued and administered by the DoD; (2) a
multiple-award contract or BOA awarded on a competitive basis issued and
administered by DoD; (3) no change (i.e., contractors are required to
obtain 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 Department of Labor (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 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.

Some questions pertinent to consideration of the various acquisition
options are included below, and DoD would appreciate your responses:

-   [Cost Drivers:]{.underline} What are the main cost drivers of DoD's
    DBA expense? How can those cost drivers be better controlled or
    mitigated?

-   [Main Stakeholders:]{.underline} 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?

-   [Claims Management:]{.underline} 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, care and proper
    treatment for workers serving those who serve our country?

-   [Technical Exhibits:]{.underline} 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]{.underline}

> The Department would appreciate additional specific responses to the
> following questions citing pros and cons of the various alternatives:
>
> a\. [Single Source DBA Contract or Basic Ordering Agreement
> (BOA)]{.underline}: Regarding a potential single source contract or
> BOA (which would be awarded based on source selection procedures
> considering price, technical, management and past performance
> criteria) structured as a basic ordering agreement, 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 US 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 or BOA:]{.underline} 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, etc.), by military service (Army, Navy, Air
> Force, etc.) and/or DoD Component (Defense Threat Reduction Agency,
> Missile Defense Agency, Defense Logistics Agency, etc.), by war zone
> versus non war-zone, by dollar value of payroll involved and/or dollar
> amount of contract, etc., to ensure we meet the criteria outlined in
> the NDAA (minimizing direct and indirect overhead costs associated
> with administering 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:]{.underline} 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 the Department and
> any minimum policy amounts might inhibit that competition.
>
> d\. [No Change (Contractors procure own DBA coverage):]{.underline} If
> the current approach is retained, how can it be modified to be
> responsive to the five criteria outlined in the 2009 National Defense
> Authorization Act, Section 843?
>
> e\. [Self-Insurance:]{.underline} 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]{.underline}

In addition to the questions above soliciting information from all
interested parties, the Department would appreciate additional responses
from interested brokers and carriers to the following questions:

a.  [Experience]{.underline}: 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:]{.underline} 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:]{.underline} What is the role of the insurance
    broker/agent in the open-market DBA insurance procurement process?

d.  [Rating Approach:]{.underline} 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 government?

e.  [Data:]{.underline} 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:]{.underline} 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]{.underline}: Regarding the length of any contract term
    for any of the policy options being considered, what term length of
    a contract would be 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]{.underline}: 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:]{.underline} 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]{.underline}: 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]{.underline}: If DoD procures DBA coverage (vs.
    contractors procuring), should DoD be contracting with a broker(s)
    or a carrier(s) or some combination of the two?

l.  [Discounts:]{.underline} By including DBA insurance with other
    insurance coverage, what type of discount is typically obtained on
    DBA insurance?

m.  [Impact of Safety Record:]{.underline} 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]{.underline}: What is your position on
    the Department 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 the DoD for approval each year, based upon your
    own individual loss experience and trending?

o.  [WHA Claims:]{.underline} 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 settled 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]{.underline}

> In addition to the questions in 1 and 2 above soliciting information
> from all interested parties, the Department would appreciate
> additional responses from DoD contractors to the following questions:

a.  [Current Practice]{.underline}: 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:]{.underline} 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; (c) acquired through a multi-line
    insurance program with DBA coverage not separately priced?

c.  [Supplemental Coverage]{.underline}: 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; (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:]{.underline} 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:]{.underline} By including DBA insurance with other
    insurance coverage, what type of discount is typically obtained on
    DBA insurance?

f.  [Impact of Safety Record:]{.underline} 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?