Page 1 GAO-05-280R Defense Base Act Insurance 

April 29, 2005 

The Honorable John Warner 

Chairman 

The Honorable Carl Levin 

Ranking Minority Member 

Committee on Armed Services 

United States Senate 

The Honorable Duncan Hunter 

Chairman 

The Honorable Ike Skelton 

Ranking Minority Member 

Committee on Armed Services 

House of Representatives 

Subject: Defense Base Act Insurance: Review Needed of Cost and Implementation Issues

Since the Iraq conflict began in March 2003, the Departments of Defense (DOD) and State, 

the U.S. Agency for International Development, and other federal agencies have issued 

contracts to perform reconstruction activities in Iraq. The large number of contractors 

working amid continued violence has raised concerns over the use of contractors to support 

U.S. military and civilian operations overseas, including the cost of workers’ compensation 

insurance provided to contractor employees in Iraq under the Defense Base Act (DBA).1

 We 

have received requests from over 100 members of Congress asking us to review a number of 

Iraq-related issues, including issues associated with DBA insurance. 

Because of the level of interest in issues dealing with Iraq, the Comptroller General initiated 

this review under his statutory authority. The objectives of our review were to identify the 

cost to the U.S. government of insurance coverage purchased under DBA and to assess the 

act’s implementation. DBA provides disability and medical benefits for contractors’ and 

subcontractors’ employees injured on the job and death benefits to survivors when those 

employees are killed. 

We are limited at this time in what we can conclude about the cost of DBA insurance. Recent 

investigations by several states into a number of insurance companies and brokers during the 

 1

 42 U.S.C. 1651-1654. 

United States Government Accountability Office

Washington, DC 20548 
Page 2 GAO-05-280R Defense Base Act Insurance 

course of our review raise questions over the reliability of information that we obtained from 

the insurance industry, a primary source of data in our review. 

Additionally, we found that it is difficult to aggregate reliable data on the cost of DBA 

insurance due in part to the large number of contractors and the multiple levels of 

subcontractors performing work in Iraq. Lacking reliable aggregate data, we were unable to 

calculate the total cost of DBA insurance to the government or the impact of DBA insurance 

costs on reconstruction activities in Iraq. 

This report explains DBA requirements; discusses DBA insurance rates, which are higher for 

DOD than for other agencies; identifies challenges and concerns that federal agencies face 

when implementing DBA; and suggests that Congress consider requiring that the Director of 

the Office of Management and Budget (OMB) determine, in coordination with DOD, the 

Departments of Labor and State, and the U.S. Agency for International Development, what 

actions should be taken to address issues that came to light during our review. We provided a 

draft of this report to OMB; DOD; the Departments of State, Justice, and Labor; and the U.S. 

Agency for International Development. OMB agreed with our assessment of the challenges 

agencies face, and DOD took no exception to the factual information in our report, but 

neither agency agreed with our recommendation. State had no comments. Justice and Labor 

provided technical comments. Labor and the U.S. Agency for International Development 

expressed willingness to work with other agencies to identify needs, options, and risks 

associated with DBA insurance. 

DBA Overview 

Congress enacted DBA in 1941 to provide workers’ compensation protection to employees of 

government contractors working at U.S. defense bases overseas. If employees incur injuries 

during the course of employment, DBA provides them with uniform levels of disability and 

medical benefits or—in the event of death—provides death benefits to their eligible 

dependents. Workers’ compensation insurance had previously been unavailable or deemed 

inadequate in some countries where the employees performed work. Subsequent 

amendments to DBA extended coverage to other classes of employees, such as those 

working under public work contracts.2

 The Department of Labor administers DBA. Labor’s 

role is to ensure that workers’ compensation benefits are provided for covered employees. 

 2

 Under DBA, the term “public work” means “any fixed improvement or any project, whether or not fixed, 

involving construction, alteration, removal, or repair for the public use of the United States or its allies, including 

but not limited to projects or operations under service contracts and projects in connection with the national 

defense or with war activities, dredging, harbor improvements, dams, roadways, and housing, as well as 

preparatory and ancillary work in connection therewith at the site or on the project.” 
Page 3 GAO-05-280R Defense Base Act Insurance 

Under DBA, contractors working in Iraq, including all levels of subcontractors, are required 

to obtain DBA insurance for all employees, including foreign nationals.3

 The cost of DBA 

insurance premiums is passed on to the government. Under the War Hazards Compensation 

Act,4 the government also reimburses insurance carriers for DBA benefits paid if the injury or 

death is caused by a “war-risk hazard,”5

 provided that the insurance carrier did not charge its 

customer a war-risk hazard premium. In addition to disability and death payments, war-risk 

hazard benefits include funeral and burial expenses, medical expenses, and reasonable costs 

necessary to process the claims. 

Increasing Use of Contractors and Continued Concerns over Cost 

Pose Challenges for Agencies Implementing DBA 

When Congress passed DBA, the military’s reliance on contractors for direct support was not 

as great as it is today. Contractors have been involved in every major U.S. military operation 

since the Persian Gulf War in 1991,6

 and military officials believe there has been a significant 

increase since then in the use of contractors to support a downsized military using more 

sophisticated weapons. While agencies have made some changes in implementing DBA over 

the years, large numbers of contractors in Iraq and conditions in that country have renewed 

concerns over the cost and administration of DBA. 

Large Numbers of Contractors in Iraq Have Led 

to Concerns over the Cost of DBA Insurance

The number of employees required to be covered under DBA while working in Iraq is 

significant. Work performed under U.S. contracts and subcontracts in Iraq includes 

rebuilding clinics, schools, and other institutions; restoring oil infrastructure; restoring 

electricity, water, and other essential services; providing security; and strengthening local 

governance institutions. We could not locate any reliable U.S. government agency estimate of 

the total number of U.S. or foreign nationals employed under U.S. government contracts in 

 3

 DBA covers the following types of contractor employment: work for U.S. government contractors on U.S. 

military bases or on any land used by the U.S. for military purposes outside the United States, work on public 

work contracts with any U.S. government agency, work on contracts approved and funded by the United States 

under the Foreign Assistance Act, and work for American employers providing welfare or similar services outside 

the United States for the benefit of the armed services. 

4

 42 U.S.C. 1701-1717. 

5

 “War-risk hazard” means any hazard from certain specified causes that arise “during a war in which the United 

Stated is engaged; during an armed conflict in which the United States is engaged, whether or not war has been 

declared; or during a war or armed conflict between military forces of any origin, occurring within any country in 

which a person covered by the Act;” See 42 U.S.C. 1711. 

6

 GAO, Military Operations: Contractors Provide Vital Services to Deployed Forces but Are Not Adequately 

Addressed in DOD Plans, GAO-03-695 (Washington, D.C.: June 24, 2003). 
Page 4 GAO-05-280R Defense Base Act Insurance 

Iraq. Additionally, while State reported that as of March 16, 2005, over 150,000 Iraqis were 

performing work in Iraq on U.S. government-administered projects, we could not validate 

these numbers, and agency officials told us there is no consistent or coordinated method for 

tracking employment figures. 

We reported on concerns over the cost and implementation of DBA and related insurance in 

1971 and 1980.7

 Since that time, the Department of State and the U.S. Agency for International 

Development have instituted single-insurer programs that require all contractors performing 

work overseas for these agencies to purchase DBA insurance from a specified insurance 

carrier at a set rate negotiated by the agencies. During the course of our review, contractors 

working for the Department of State and the U.S. Agency for International Development paid 

approximately $2 to $5 for every $100 of salary cost for DBA insurance in all locations. 

In contrast, DOD contractors must independently acquire their own insurance. The eight 

DOD prime contractors we contacted reported that they were paying DBA insurance rates 

between approximately $10 and $21 per $100 of salary cost for work in Iraq during the period 

of our review. While the government has limited visibility into how DBA insurance rates are 

set, agency officials at the Department of State and U.S. Agency for International 

Development told us the lower rates under their single-insurer programs are due to such 

factors as the pooling of work done in Iraq with work done in other places in the world, the 

less risky nature of the work they perform, and a low number of claims. 

DOD completed a congressionally directed study in 1996 on the feasibility and desirability of 

initiating a single-insurer program. While DOD concluded at that time that such a program 

would not lead to cost savings, the DBA insurance rates defense contractors are now paying 

have led to concerns among DOD officials over the cost of DBA insurance. To address these 

concerns, DOD, through the U.S. Army Corps of Engineers, issued a solicitation on March 7, 

2005, for a 1-year pilot contract to a single insurer for DBA insurance for all Army Corps of 

Engineers contractors performing work overseas. The solicitation originally required offers 

be submitted by April 7, 2005. The deadline was extended indefinitely to allow DOD to 

prepare responses to questions received from prospective offerors. 

Agencies Face Challenges Implementing DBA in Iraq

According to agency officials, conditions in Iraq, such as mixed-funding sources for contracts 

and language barriers, have led to complications in implementing DBA. Implementation 

challenges include clarifying when DBA applies, providing adequate and accurate 

 7

 GAO, Opportunity for Savings in Providing War Risk Insurance for Contractor Property and Employees, B72699 (Washington, D.C.: November 1971) and GAO, AID Needs Clarification on Defense Base Act Insurance 

Requirements, B-162408 (Washington, D.C.: October 1980). 
Page 5 GAO-05-280R Defense Base Act Insurance 

information to companies and workers, monitoring compliance, and processing claims. 

Despite actions taken by agencies, many challenges remain unresolved. 

Department of Labor officials have reported, and GAO has observed, confusion among 

federal agencies and contractors over DBA.8

 One source of confusion relates to when DBA is 

required. Some agency officials initially believed they could apply existing waivers granted by 

Labor for DBA insurance in Iraq, but Labor officials clarified that waivers do not apply in that 

country because of the absence of a local workers’ compensation system. Subsequently, in 

December 2004, the Department of State issued a proposed change to its acquisition 

regulation to clarify when DBA insurance coverage is and is not required. However, new 

questions about when DBA applies have arisen. For example, while Labor has taken the 

position that DBA requirements do not cover work performed under grants, officials from 

other agencies recently expressed confusion over what benefits would be provided if 

grantees purchase DBA insurance. In addition, it is unclear to many agency officials whether 

DBA applies in cases where non-U.S. appropriated funds are mixed with U.S. appropriations. 

In addition to questions over DBA, a number of other implementation challenges have 

surfaced. Labor and State officials told us that language and literacy barriers present a 

challenge when providing DBA information to companies and workers in Iraq. Labor officials 

told us that enhancing enforcement of DBA would require reports of coverage to be sent to 

Labor on every contract and subcontract in Iraq. Labor officials also informed us that the 

department is limited in the actions it can directly take for noncomplying contractors. Adding 

to the implementation challenges, Labor officials told us that the processing of claims has 

been slowed by difficulty in obtaining medical and other personal information because of 

conditions in Iraq and the need to respect local customs. Additionally, at a recent Department 

of Labor seminar, attorneys involved in DBA issues reported difficulty in obtaining necessary 

documentation, including contracts and marriage records, to file and report claims. 

Conclusion 

It is difficult to determine whether all DBA insurance is purchased in a cost-effective manner 

or if agencies’ implementation challenges hinder their effectiveness in providing workers’ 

compensation coverage under DBA. Lack of reliable information on numbers of contractors 

and cost of DBA insurance restricts the ability of agencies to make informed decisions on 

purchasing strategies for DBA. Additionally, confusion over when DBA applies and difficulty 

in enforcing DBA and processing claims remain largely unresolved problems, despite actions 

taken by agencies. Finally, new challenges, such as growing numbers of contractors, have 

arisen since 1941, when DBA was passed. These factors highlight the need for a coordinated 

effort among affected agencies to identify actions that can address such challenges. 

 8

 We previously reported on the confusion over when DBA is applicable in 1980 (GAO, B-162408). 
Page 6 GAO-05-280R Defense Base Act Insurance 

Matter for Congressional Consideration 

To ensure that DBA cost and implementation issues are adequately addressed, we suggest 

that Congress consider requiring the Director of OMB to determine, in coordination with 

DOD, the Departments of Labor and State, and the U.S. Agency for International 

Development, current and future needs, options, and risks associated with DBA insurance. 

The agencies involved in this coordinated effort should identify actions, including any 

necessary legislative changes, to address the following issues: 

• identifying cost-effective options for acquiring DBA insurance; 

• developing methods for coordinating data collection efforts among agencies and 

contractors on the cost of insurance and other relevant information to make informed 

decisions; 

• facilitating consistent, collective, and collaborative application of DBA across agencies by 

• developing and disseminating guidance on when and to whom DBA applies, 

• improving communication within and among agencies about the implementation of 

DBA and associated difficulties through such means as an informal network, 

interagency working groups, conferences, forums, or Web sites; 

• identifying actions to address difficulties with administering DBA, such as 

• identifying potential means to address enforcement challenges, 

• collecting data from contractor employees to facilitate claims processing, 

• collecting and reporting to Labor information on contractors performing overseas and 

whether they have DBA insurance. 

Agency Comments and Our Evaluation 

DOD and OMB provided written comments on a draft of this report. Both disagreed with our 

recommendation, which is now included in the report with minor clarifications as a matter 

for congressional consideration. OMB agreed with our assessment of the challenges agencies 

face but points to actions already taken by the administration. OMB states that our 

recommendation is overly broad and said a targeted approach would be preferable in light of 

the need to give immediate attention to specific issues in Iraq. DOD took no exception to the 

factual information contained in our report but said that ongoing actions address the issues 

in our report. DOD also contends that the cost of undertaking an interagency effort will 

outweigh potential benefits. 

We agree that agencies are taking actions to address some of the challenges discussed in our 

report. However, it was clear during our review that increased coordination among all 

affected agencies will be needed to identify actions to address DBA cost and implementation 

challenges. For example, we found that the conditions in Iraq make it difficult to enforce 

DBA and process claims. We also found that an informal interagency working group 

addressing insurance issues was not focused on issues related to DBA. And the working 

group did not include Labor officials, who play a key role in claims processing and 
Page 7 GAO-05-280R Defense Base Act Insurance 

administration of DBA insurance. Furthermore, at a Labor seminar on DBA held in April 

2005, we observed confusion among attendees over when DBA applies. 

Our review also revealed the agencies lacked reliable data on how many contractors and 

subcontractors are in Iraq, costs to the government of DBA coverage for contractors, and 

whether all contractors operating in Iraq provided their employees required DBA insurance 

coverage. Without such information, the agencies are not in a position to make informed 

decisions about implementing DBA. DOD stated that it believes costs of interagency efforts 

will outweigh potential benefits. DOD officials told us, however, they do not have cost 

estimates or other data to support their statement, but that they believe challenges with 

implementing DBA in Iraq are being addressed and data collection and reporting efforts 

would be expensive and would divert limited resources. We do not believe our 

recommendation is overly broad; rather it provides flexibility to agencies to deal with the full 

range of issues we identified and allow them to proactively address the government’s 

growing use of contractors in overseas situations now and in the future. We continue to 

believe a more coordinated and comprehensive approach, involving all of the affected 

agencies, is necessary to address DBA cost and implementation issues. OMB’s and DOD’s 

comments are included in enclosures I and II, respectively. 

Labor indicated its willingness to work with other agencies and provided technical comments 

that are incorporated as appropriate (see enclosure III). Justice also provided technical 

comments, which were incorporated as appropriate. State had no comments. The U.S. 

Agency for International Development indicated, via e-mail, that it looked forward to working 

with OMB and the other agencies on the recommendation. 

Scope and Methodology 

To address our objectives, we obtained rates spent on DBA insurance for 21 contracts held 

by 13 prime contractors performing work in Iraq under cost-reimbursable contracts. These 

contracts represent 69 percent of U.S.-appropriated contracting dollars awarded for ongoing 

work as of May 2004. We selected companies of different sizes performing a range of services 

for DOD, the Department of State and the U.S. Agency for International Development. We did 

not obtain DBA rates from subcontractors in our review. We conducted interviews with 

officials from the selected contractors and DOD, the Departments of State, Labor, and 

Justice, and the U.S. Agency for International Development, as well as representatives from 

11 insurance companies and brokers. We were unable to verify numbers provided by the 

Department of State for the total numbers of Iraqi employees working on U.S. governmentadministered reconstruction projects. Additionally, in light of recent investigations into the 

insurance industry, we did not rely on information obtained previously from insurance 

industry representatives. We performed our review between May 2004 and April 2005 in 

accordance with generally accepted government auditing standards. 
Page 8 GAO-05-280R Defense Base Act Insurance 

If you have any questions, please contact me at (617) 788-0555 or at cooperd@gao.gov or 

John K. Needham, Assistant Director, at (202) 512-5274 or needhamjk1@gao.gov. Other major 

contributors to this report include Lily Chin, Christina Cromley, Jeff Hartnett, Bill McPhail, 

Lisa Simon, and Shannon G. Simpson. 

Sincerely, 

David E. Cooper 

Director 

Acquisition and Sourcing Management 
Enclosure I: Comments from the Office of Management 

and Budget 

Page 9 GAO-05-280R Defense Base Act Insurance 

Enclosure I: Comments from the Office of 

Management and Budget 
Enclosure I: Comments from the Office of Management 

and Budget 

Page 10 GAO-05-280R Defense Base Act Insurance 
Enclosure II: Comments from the Department of 

Defense 

Page 11 GAO-05-280R Defense Base Act Insurance 

Enclosure II: Comments from the 

Department of Defense 
Enclosure II: Comments from the Department of 

Defense 

Page 12 GAO-05-280R Defense Base Act Insurance 
Enclosure III: Comments from the Department of 

Labor 

Page 13 GAO-05-280R Defense Base Act Insurance 

Enclosure III: Comments from the 

Department of Labor 
Enclosure III: Comments from the Department of 

Labor 

Page 14 GAO-05-280R Defense Base Act Insurance (120377) 
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