Defense Base Act Insurance:

Review Needed of Cost and Implementation Issues

GAO-05-280R: Published: Apr 29, 2005. Publicly Released: Apr 29, 2005.

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William T. Woods
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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). 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 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.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Congress passed Section 1042 in the National Defense Authorization Act for Fiscal Year 2006, which was signed by the President on January 6, 2006, as Public Law No: 109-163. Section 1042 directs the Secretary of Defense, in coordination with the Director of the Office of Management and Budget and appropriate officials of the Departments of Labor and State and the U.S. Agency for International Development to review current and future needs, options and risks associated with DBA insurance, including identifying cost effective options for acquiring DBA insurance, developing methods for coordinating data collection efforts among agencies and contractors, and taking actions to address difficulties in the administration of DBA. When implemented, this coordination effort should help to address cost and implementation challenges agencies face in applying DBA in Iraq. DOD officials in June 2006 said that activity on the mandate was just getting underway.

    Matter: To ensure that DBA cost and implementation issues are adequately addressed, Congress may wish to 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: (1) identifying cost-effective options for acquiring DBA insurance; (2) developing methods for coordinating data collection efforts among agencies and contractors on the cost of insurance and other relevant information to make informed decisions; (3) facilitating consistent, collective, and collaborative application of DBA across agencies by (a) developing and disseminating guidance on when and to whom DBA applies, and (b) 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; and (4) identifying actions to address difficulties with administering DBA, such as (a) identifying potential means to address enforcement challenges, (b) collecting data from contractor employees to facilitate claims processing, and (c) collecting and reporting to Labor information on contractors performing overseas and whether they have DBA insurance.


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