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Defense Base Act

Bidding Strategies for U.S. Contractors & Impacts by Geopolitical Issues

Defense Base Act

Bidding Strategies for U.S. Contractors

Contractors must take into account mandatory Defense Base Act insurance when bidding on OCONUS projects

Defense Base Act insurance is federally mandated workers compensation insurance for any government contractor working outside the continental U.S. (OCONUS).

Defense Base Act LawMany contractors are surprised to find out that they must purchase this coverage on a stand-alone basis. Domestic workers compensation policies will not cover them adequately for U.S. Government contracted work being performed outside the U.S. and its territories. This statutory requirement is extremely important to consider when budgeting and bidding on U.S. government contracts that require overseas travel.

Additionally, certain subcontracts may even require Foreign General Liability insurance as a requirement for the contract. This is not always the case, but it certainly can be required by specific contracts even if it is not required by U.S. statute.

U.S. Government contractors working overseas must consider many factors when finalizing their bid for these contracts. These include the cost of insurance, travel expenses, equipment availability & shipment, security, lodging, and logistics. Other consideration should include but are not limited to political risk and certain geopolitical issues which can quickly disrupt business for primary and subcontractor work being performed abroad.

DBA Contractors Impacted by Geopolitical Issues

In a recent Wall Street Journal article, WSJ stated that China sanctions will be targeting U.S. government contractors. Apparently, the Chinese sanctions are in retaliation over proposed arms sales to Taiwan.

Contractor DBA

The Chinese government is threatening the possibility of imposing sanctions on Lockheed Martin Corporation, Boeing, and Raytheon Technologies. The Chinese government stated that the sanctions are necessary to safeguard China’s national interest and security.

It is China’s belief that Taiwan is part of mainland China. In recent years it has tried to intimidate and taunt Taiwan with aggressive military and navy patrols.

Savings on DBA Insurance Won’t be Realized

Most of the sanctions on U.S. government contractors would be specific to defense sales. They would not necessarily impact commercial sales such as airplanes, helicopters, etc.

As it stands now, these recent developments will have little or no consequences to subcontractors working for these companies. That said, OCONUS payroll exposures are not expected to reduce significantly for these companies, so they will not realize any significant savings on insurance costs, especially for Defense Base Act insurance.

 

Learn more about Defense Base Act insurance here.

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