This is the accessible text file for GAO report number GAO-05-280R 
entitled 'Defense Base Act Insurance: Review Needed of Cost and 
Implementation Issues' which was released on April 29, 2005.

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately.

United States Government Accountability Office:

Washington, DC 20548:

April 29, 2005:

The Honorable John Warner: 
The Honorable Carl Levin: 
Ranking Minority Member: 
Committee on Armed Services: 
United States Senate:

The Honorable Duncan Hunter: 
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).[Footnote 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 

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 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 

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.[Footnote 2] The Department of Labor 
administers DBA. Labor's role is to ensure that workers' compensation 
benefits are provided for covered employees.

Under DBA, contractors working in Iraq, including all levels of 
subcontractors, are required to obtain DBA insurance for all employees, 
including foreign nationals.[Footnote 3] The cost of DBA insurance 
premiums is passed on to the government. Under the War Hazards 
Compensation Act,[Footnote 4] the government also reimburses insurance 
carriers for DBA benefits paid if the injury or death is caused by a 
"war-risk hazard,"[Footnote 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,[Footnote 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 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.[Footnote 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 
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.[Footnote 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.


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.

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 

* 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 

* 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 

* 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 
administration of DBA insurance. Furthermore, at a Labor seminar on DBA 
held in April 2005, we observed confusion among attendees over when DBA 

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. government-
administered 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 

If you have any questions, please contact me at (617) 788-0555 or at or John K. Needham, Assistant Director, at (202) 512-
5274 or Other major contributors to this report 
include Lily Chin, Christina Cromley, Jeff Hartnett, Bill McPhail, Lisa 
Simon, and Shannon G. Simpson.


Signed by: 

David E. Cooper: 
Acquisition and Sourcing Management:

[End of section]

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

wASHINGTON, DC. 20503:

APR 06 2005:

Mr. David E. Cooper: 
Acquisition and Sourcing Management:
United States Government Accountability Office: 
Washington, DC 20548:

Dear Mr. Cooper:

Thank you for this opportunity to comment on the GAO draft 
correspondence en itled "Defense Base Act Insurance: Review Needed of 
Cost and Implementation Issues."

We appreciate GAO's careful review of Defense Base Act (DBA) 
implementation and the many challenges faced by both contractors and 
agencies as they seek to meet their responsibilities under the law.

As noted in your letter, the recent increase in the use of contractors 
to support U. S. military and civilian operations overseas, 
particularly in Iraq, has presented numerous challenges with respect to 
DBA administration. The Administration has taken a number of steps to 
address these challenges. These include an interagency workgroup, 
comprised of staff from the Departments of State and Defense, the 
Office of Management and Budget, and the U.S., Agency for International 
Development, which has met to examine issues surrounding the cost and 
availability of DBA insurance coverage. In early April the Department 
of Labor (DOL) held its fourth seminar on DBA for contractors, agency 
contracting personnel, and other interested parties to provide 
information on coverage and requirements. Responding to confusion about 
DBA waiver authority, the State Department last December published a 
proposed rule in tended to clarify when DOL waivers apply and when 
State may waive DBA requirements for contractors performing work on an 
intermittent basis. Lastly, as your correspondence notes, the Army 
Corps of Engineers has begun work on a pilot single-insurer program for 
DBA, which if effective may be expanded Department of Defense-wide.

While we agree with the assessment that challenges remain, we do not 
concur wi h GAO's recommendation that the Office of Management and 
Budget "determine ... current and future needs, options, and risks 
associated with DBA insurance." In our view, this recommendation is 
overly broad. We believe a targeted approach to DBA issues would be 
preferable in light of the need to give immediate attention to our 
specific needs in Iraq. The Administration will continue the efforts it 
has begun, and work to solve specific issues as they arise.

Thank you for your efforts to improve the implementation of the DBA and 
the opportunity to comment.


Signed by: 

Dean F. Clancy: 
Associate Director: 
Human Resource Programs: 

[End of section]

Enclosure II: Comments from the Department of Defense:

WASHINGTON, DC 20301-3000:

MAR 15 2005:

Mr. David E. Cooper:
Director, Acquisition and Sourcing Management: 
U.S. Government Accountability Office:
441 G Street, N.W.: 
Washington, D.C. 20548:

Dear Mr. Cooper:

This is the Department of Defense (DoD) response to the GAO draft 
report, "Defense Base Act Insurance: Review Needed of Cost and 
Implementation Issues," dated February 28, 2005 (GAO Code 120377/GAO-
05-280R). While we take no exception to the factual information 
contained therein, it is not necessary "that the Director of the Office 
of Management and Budget determine, in coordination with the 
Departments of Defense, Labor, and State and the U.S. Agency for 
International Development, current and future needs, options, and risks 
associated with DBA insurance." In fact, the costs of undertaking such 
a substantial interagency effort to address the issues listed with this 
recommendation will outweigh any potential benefits.

For example, the various new DBA data collection and reporting efforts 
suggested for federal agencies and contractors would be expensive and 
would divert already limited resources, without any clear benefit for 
the procurement process. Similarly, the recent communications 
initiatives of the Department of Labor (DOL) in this area should be 
given sufficient time to achieve their anticipated results before 
chartering any additional interagency DBA working groups, conferences, 
forums, and/or web sites.

In addition, a number of the issues identified in the recommendation 
for an OMB sponsored review are already being addressed by the 
appropriate government entities. Clearly, the longstanding DBA 
insurance programs at the U.S. Agency for International Development and 
the Department of State have been effective in helping control the cost 
of this mandatory insurance. Also, as explained in the report, the U.S. 
Army Corps of Engineers has an ongoing initiative to examine whether 
such a DBA insurance program might also be advantageous for DoD at this 
time. Moreover, in the last year and a half, DOL, which has the 
statutory responsibility for administering the DBA, has been very 
active in sponsoring a series of highly informative seminars and 
roundtable meetings on this subject. This DOL initiative has greatly 
increased awareness of DBA requirements within both the government 
procurement and contractor communities.

I appreciate the opportunity to comment on this draft report.


Signed by: 

Deidre A. Lee: 
Director, Defense Procurement and Acquisition Policy: 

[End of section]

Enclosure III: Comments from the Department of Labor:

U.S. Department of Labor:
Assistant Secretary for Employment Standards: 
Washington. D.C. 20210:

March 21, 2005:

Mr. David E. Cooper: 
Director, Acquisition and Sourcing Management: 
United States Government Accountability Office: 
Washington, D.C. 20548:

Dear Mr. Cooper:

This responds to your request for comments from the U.S. Department of 
Labor on the draft report, Defense Base Act Insurance: Review Needed of 
Cost and Implementation Issues.

We have reviewed the Defense Base Act (DBA) report and our comments are 
as follows:

1. The draft report states that "... DBA is administered by the 
Department of Labor..." (page 1). This is only partially true, as our 
administration and oversight is limited to the claims side of the 
system, monitoring timely and accurate benefit payments, and resolving 
disputes related to those matters. The department has no authority over 
the business side of the system, including insurance availability, 
pricing, or purchasing arrangements.

2. The draft report states that "Labor officials also informed us that 
they would need enforcement teams in Iraq to monitor compliance..." 
(page 5). This statement misconstrues the department's view. Although a 
comment to this effect may have been made as part of the general 
discussion regarding insurance enforcement, it was made to illustrate 
the impossibility of assuring that all contracted employees have 
insurance coverage without having someone in Iraq to actually demand to 
see proof of coverage for every level of subcontracted work, an 
impossible task. In fact, it is the department's perspective that 
enforcement of DBA coverage needs to take place before workers are sent 
overseas, with reports of coverage sent to the department on every 
contract and subcontract let. This is the only way in which accurate 
and useful records of insurance coverage can be maintained.

3. The Department of Labor is willing to work with any other agencies 
on matters of DBA coverage.

The Department appreciates the opportunity to provide comments on this 


Signed for: 

Victoria A. Lipnic: 

[End of section] 


[1] 42 U.S.C. 1651-1654.

[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."

[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 

[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).

[7] GAO, Opportunity for Savings in Providing War Risk Insurance for 
Contractor Property and Employees, B-72699 (Washington, D.C.: November 
1971) and GAO, AID Needs Clarification on Defense Base Act Insurance 
Requirements, B-162408 (Washington, D.C.: October 1980). 

[8] We previously reported on the confusion over when DBA is applicable 
in 1980 (GAO, B-162408).