Congress enacted DBA in 1941 to provide workers’ compensation protection to employees of government contractors working at U.S. defense bases overseas. Subsequent amendments to DBA extended coverage to other classes of employees. DBA insurance provides covered employees with uniform levels of disability and medical benefits—or in the event of death provides benefits to their eligible dependents. DOL administers DBA, ensuring that workers’ compensation benefits are provided for covered employees and overseeing the claims process, among other things. Under DBA, U.S. government contractors and subcontractors are required to obtain DBA insurance for all employees, including foreign nationals, unless DOL issues a waiver. The cost of DBA insurance premiums, if allocable and reasonable, is generally reimbursable under government contracts. Under the War Hazards Compensation Act, the government also reimburses insurers for DBA benefits paid if the injury or death is caused by a “war-risk hazard,” provided that the insurer 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. In providing for DBA coverage, agencies mainly use one of two approaches: a single insurer program or an open market system. For instance, USAID has a single insurer program. DOD has generally employed an open market system. USACE, however, had a single insurer program from 2005 to 2013, and then transitioned to an open market system. State adopted a single insurer program in response to a 1991 report by its OIG, which among other things, estimated that State could save approximately 40 percent of its DBA cost by moving to a single insurer program. Under a single insurer program such as the one implemented by State, an agency selects one insurer to provide DBA insurance through a competitively selected multiyear agreement. The resulting agreement sets premium rates for the agency’s contractors. The agreement may stipulate that rates will remain fixed during the entire term of the agreement, or that the rates may be adjusted up or down by mutual consent of the agency and the single insurer. To obtain DBA insurance, the agency’s contractors contact a broker specified by the single insurer. The broker obtains the contractor’s statement of work, assigns the contractor to a service category (for example, security), and collects premiums based on the contractor’s payroll and the premium rates for the service category. Under State’s single insurer program, DBA insurance was listed as a separate line item on the agency’s contract with each contractor. Under an open market system, contractors must independently obtain DBA insurance coverage from an insurer licensed by DOL to underwrite DBA insurance, and they usually do this through a broker. In this system, agencies do not play a role in setting premium rates. Each contractor’s selected insurer issues a DBA insurance policy that fixes premium rates generally for 1 year; after that, the rates and corresponding premiums can move up or down based in part on the insurer’s assessment of the contractor’s risk. The initial premium rate can vary by contractor based on the insurer’s assessment of the contractor’s risk. Contractors with a history of few or no claims can see a reduction in their premiums when renewing their DBA insurance, while contractors with a history of many claims can see an increase. To reduce the likelihood of claims, contractors can sometimes participate in a risk assessment and reduction program sponsored by their DBA insurer. According to State guidance issued in August 2012, it is no longer required that DBA insurance be identified as a separate line item on the agency’s contract with each contractor. Depending on the type of contract, a contracting officer may include the cost of DBA insurance separately. Figure 2 provides a process map of the two approaches. In 2008, State entered into a multiyear contract with a single DBA insurer. In September 2011, State and its single insurer agreed that the DBA contract would expire in July 2012. In June 2012, State posted a solicitation seeking to select a single insurer through a competitive source selection process. After State received no offers in response to its solicitation, it withdrew the solicitation 3 days before its existing contract expired and transitioned to a system requiring contractors to obtain DBA insurance on the open market. Leading acquisition practices emphasize the importance of allowing enough time to complete a solicitation, adequately documenting market research, and collecting and analyzing data, among other things. We found that State did not follow these leading practices. Specifically, State (1) had little time to complete the process of designating a DBA single insurer, (2) did not conduct a lessons learned assessment after agreeing to terminate its existing DBA contract, (3) did not adequately document market research, and (4) did not provide sufficient information to insurers. As a result, State had to quickly transition to an open market system without evaluating the relative costs and benefits involved. According to officials of insurers, brokers, and some contractors, after transitioning, State did not communicate its change in a timely manner to insurers, brokers, and contractors, which caused confusion among contractors and left some with little time to replace their expiring DBA policies. Within State’s Bureau of Administration, its Office of the Procurement Executive is responsible for maintaining State’s acquisition regulations and procedures, and its Office of Acquisitions Management manages most of the procurement for State domestically and overseas. The Office of Acquisitions Management was in charge of the competitive source selection processes for State’s single insurer program. In 2001, State first signed a contract with its most recent single insurer to provide DBA insurance to State contractors. In 2008, State signed a similar contract with the same single insurer, this one a 5-year contract consisting of a base year and 4 option years. The premium rates for the base year, or year 1, were fixed, but the contract allowed for adjustments in the rates by mutual agreement for years 2, 3, 4, and 5, with any adjustments to be based on cumulative losses sustained by State’s single insurer since the start of the contract. To ensure that contractors were appropriately assigned a DBA premium rate based primarily on risk, the 2008 contract provided that contractors would be assigned to one of four types of service rate categories (listed here from highest to lowest risk): security contractors involved in aviation-related work in defined hazardous areas such as Afghanistan and Iraq, other security contractors working in the same hazardous areas, construction contractors, and service contractors. Figure 3 shows key dates and information related to State’s 2008 single insurer contract. Prior to the start of year 3 of the contract in July 2010, State’s single insurer raised a concern about increasing DBA losses and the potential for further increases in losses. Among other things, State’s single insurer asked for an increase in premium rates for year 3. According to documentation from State and State’s single insurer, the losses far exceeded what the single insurer’s actuaries had anticipated and resulted from several factors, including an increase in the number of claims from State’s security contractors, many of which operated in hazardous areas. The single insurer also cited an increase in the number of injured employees that had not found suitable work upon release from their contract because of poor economic conditions or the nature of their State injuries, which could include post-traumatic stress disorder.acknowledged that DBA losses had increased, but disagreed about the extent of the losses and did not agree to allow the single insurer to increase its premium rates. State also did not agree to the single insurer’s request to obtain the services of an outside actuarial expert to validate the losses sustained by State’s single insurer. In May 2011, prior to the start of year 4 of the contract, State’s single insurer requested a lump sum payment of approximately $27 million to cover losses from year 3 of the contract as well as an increase in premium rates for year 4 of the contract. by a warning of legal action. State’s single insurer concluded that it had underestimated its 2010 losses and stated that a revised methodology it used to estimate losses showed that it should have charged higher premiums beginning with year 3 (July 2010-July 2011). State’s single insurer also stated that its revised loss estimate methodology, which used forecasted losses rather than actual sustained losses, was consistent with insurance industry standards. State’s single insurer termed the lump sum payment request a “request for equitable adjustment.” rate increases raised numerous questions about how the insurer had originally established its premium rates, along with other concerns. State and its single insurer met to discuss the insurer’s requests and exchanged correspondence but could not resolve their differences. Because State and its single insurer could not agree on a solution, in September 2011, State signed a memorandum with its single insurer agreeing that State would not exercise its right to continue the program through year 5, the final option year of the contract. Between then and July 2012, a number of key events occurred. These are noted below: September 12, 2011: State and its single insurer agreed that the DBA contract would expire on July 21, 2012. February 9, 2012: State posted a request for information containing a DBA-related questionnaire to insurers, brokers, and contractors on a federal procurement website. Nine responded by February 28, 2012. June 14, 2012: Seeking to designate a single insurer through a competitive source selection process, State posted a solicitation requesting that insurers submit proposals by June 27, 2012. June 14 through July 16, 2012: State twice extended the time frame for the solicitation, ultimately setting the deadline as July 16, 2012. Responding insurers stated that the solicitation contained objectionable provisions. On July 16, 2012, one insurer filed a bid protest with GAO. July 18, 2012: Having received no offers in response to its solicitation, State withdrew the solicitation.