Why You Should Get a DBA Quote Before Bidding for a Government Contract
If you work on government projects outside of the United States, then you probably know that you are required to have Defense Base Act (DBA) insurance that provides benefits ranging from disability to death benefits for your employees. Did you also know that many government agencies allow this to be a direct line on your proposal so you DO NOT need to pay it out of your overhead? But many companies don’t correctly include it in their proposal or underestimate the cost. You can MAXIMIZE your return on contracts by working with an international insurance broker, like Clements Worldwide.
The Information You Need to Get a DBA Quote
Getting DBA insurance contains multiple steps, so it’s a good idea to start ahead of time.
Once you have contacted a broker specializing in DBA insurance, you will need to complete the following:
- Fill out a DBA application
- Provide a copy of the contract you are bidding on (or have been awarded)
- Provide a detailed scope of work and/or description of services
- Provide an official loss runs report from your previous DBA provider (if you have a history of coverage)
- Provide a detailed allocation of payroll by nationality and job description
- Provide details surrounding preventative security measures or procedures in place
After your broker has reviewed the information with the client, they will submit the risk to the DBA Market. Most insurance carriers take 3-5 business days to respond to submitted risks, depending on their individual workload. The underwriters will then respond by either asking for further clarification of terms or by releasing terms if everything is satisfactory. Since the coverage is standardized on a federal level, Kevin Pedone, a Clements Worldwide Sales Executive, says, “Choosing a carrier usually comes down to price or a combination of price and reputation around claims services.”
Why Working through a Broker is Valuable
DBA specialist brokers usually have relationships with all of the carriers that provide DBA coverage, making the process easier and quicker. Specialized brokers also understand which underwriter might potentially fit best, based on the type of work and the geography of the contractor. Additionally, some companies will only accept business through a broker or an agent and a broker can help you with the claims process.
Currently, only seven approved DBA insurance providers exist. Depending on the risk of the contract, your broker may decide to only market your risk to some DBA carriers. Since specialized brokers usually have relationships with the seven DBA insurance providers, they will also know each carrier’s preferences. For instance, some carriers only like large premium accounts, some only like low risk clerical/office type work and others have a larger spectrum of risk that will cover private security contractors operating in places like Iraq and Afghanistan.
Back to the Basics: What is Defense Base Act Insurance?
Defense Base Act (DBA) insurance provides benefits for employees who work on a U.S. government project outside of the United States, in the event that they are injured or killed. DBA benefits range from disability compensation to medical expenses and death benefits. Actual compensation depends on various factors, such as percentage of payroll, nationality, and the extent of the injury.
DBA insurance covers the following employee activities, regardless of the employee’s nationality:
- Working on contracts approved and funded by the U.S. under the Foreign Assistance Act
- Working for private employers on U.S. military bases or on any lands used by the U.S. for military purposes outside of the United States
- Working for American employers who provide welfare or similar services outside of the U.S. for the benefit of the Armed Forces
- Working on public work contracts with any U.S. government agency
For more details, please visit the U.S. Department of Labor.
Why is DBA Insurance Mandatory?
The DBA insurance requirements are identical to the Longshore and Harbor Workers' Compensation Act (LHWCA) requirements. As such, every employer is required to secure insurance for the payment of worker’s compensation benefits or to be permissibly self-insured. Every employer is also liable for disability, medical, and death benefits for employees in the event of injury or death. Due to these requirements, companies must get proper DBA insurance for their employees. Your DBA costs can appear as just a line item on your expenses for a government contract, but if you under-estimate the costs it will come directly out of your bottom line.
A few years ago, several sole source DBA markets that had pre-negotiated fixed rates existed. Contractors didn’t need to go through underwriting as the fixed rates were based on the U.S. contracting agency and the scope of the work that employees were doing. However, most of these markets are no longer available and contractors can no longer rely on those fixed rates.
Since contractors must go to the open market to procure DBA insurance, they need to get quotes for this coverage prior to submitting bid proposals. If a contractor estimates their DBA cost at 5% of payroll and win the contract, but then the market changes the rate to 15%, this may directly affect their profit margin.
A bad loss history also directly affects companies. Carriers may not provide DBA insurance to contractors who run bad losses, or they may get higher rates, which means contractors who run a bad claims or loss history may lose future government contracts. Pedone states, “This will end up creating a market for risk managers to run their operations with as little losses as possible, as getting favorable DBA rates will create a competitive edge in the bidding process.”
Companies should have defined training, procedures, and security policies in place to help prevent claims before they happen. They should also review and manage claims for trends that could be avoided in the future to lower losses. As stated, not only will this help lower your costs, but may also make your bid more competitive to win more business.
When bidding on a government contract, you should always contact a broker to get an estimate on all your insurance related needs. DBA is only one of the insurance policies you need, so make sure you check all your policies to see how they affect your insurance pricing. You need to give your broker 3-5 days to shop the market properly, as waiting until the last minute will most likely cause pricing issues in the future.
By giving your broker advance notice that you are pricing a government project, you will limit your exposures to budgeting inefficiencies for your insurances. Since there are a limited number of DBA insurance providers and since DBA insurance is mandatory for all government contracts, you should always work through a broker specializing in DBA insurance to save time and money.