The Defense Base Act (DBA): The Federally Mandated Workers' Compensation System for Overseas Government Contractors

The Defense Base Act (DBA): The Federally
Mandated Workers’ Compensation System for
Overseas Government Contractors
Updated October 20, 2008
Valerie Bailey Grasso
Specialist in Defense Acquisition
Foreign Affairs, Defense, and Trade Division
Scott Szymendera
Analyst in Disability Policy
Domestic Social Policy Division
Baird Webel
Analyst in Financial Economics and Risk Assessment
Government and Finance Division



The Defense Base Act (DBA): The Federally Mandated
Workers’ Compensation System for Overseas
Government Contractors
Summary
Many overseas federal contractors are covered by the Defense Base Act (DBA),
which mandates that they provide workers’ compensation insurance for their
employees. As the U.S. military has increased operations in Iraq, the size of the DBA
program has grown, and in 2007 over $170 million in cash and medical benefits were
paid to nearly 12,000 DBA claimants who were injured or killed while working
under contract to the federal government.
Congress has become increasingly concerned with the costs involved in the
DBA program because the federal government usually reimburses its contractors for
their DBA premiums. The Department of State (DOS) and the U.S. Agency for
International Development (USAID) have seen some cost savings since adopting a
single-source model for their DBA insurance in which contractors for each agency
are required to purchase insurance from a single company selected by the agency.
The U.S. Army Corps of Engineers (USACE) is currently testing such a model for
its DBA system. For the rest of the Department of Defense (DOD), however,
including the Army’s large Logistics Civil Augmentation Program (LOGCAP)
contract, individual contractors are free to select their own DBA insurers and
negotiate their own rates.
The Duncan Hunter National Defense Authorization Act (NDAA) for FY2009
(S. 3001, P.L. 110-417) includes a provision that requires DOD to change the way
its contractors provide DBA coverage for their workers. In addition, the House
Committee on Oversight and Government Reform held hearings in 2008 on the
DBA. Current DOD DBA policies have also been criticized by the Government
Accountability Office (GAO) and the Army’s own auditors. It is expected that cost
issues associated with the DBA will continue to be the subject of congressionalth
attention for the remainder of the 110 Congress and beyond.
This report provides an overview of the DBA and the systems used to provide
DBA insurance at DOS, USAID, DOD, and USACE. Also included are criticisms
of the current DOD DBA policy raised by GAO and Army auditors as well as
responses to those criticisms by DOD and USACE. The report concludes with a
discussion of several DBA reform options suggested by the House of Representatives
in recent legislation. This report will be updated to reflect any legislative changes.
A list of acronyms used in this report is provided in the Appendix.



Contents
Workers’ Compensation in the United States............................1
Federal Workers’ Compensation..................................2
The Defense Base Act (DBA)........................................3
Legislative History.............................................4
Major New Developments...........................................5
Basic Provisions of the Defense Base Act (DBA).........................5
DBA Eligibility...............................................6
DBA Insurance................................................7
Insurance Through Private Carriers............................7
Self-Insurance ............................................7
DBA Waivers.................................................8
DBA Benefits for Foreign Nationals...............................8
DBA Administration...........................................9
Dispute Resolution.........................................9
War Hazards Compensation Act (WHCA)..........................9
Selection of Defense Base Act (DBA) Providers........................10
Department of State (DOS) and the U.S. Agency for International
Development (USAID)....................................11
Department of Defense (DOD)..................................12
Government Accountability Office (GAO) Audit and Review of the
DBA Program.......................................12
Congressional Response to GAO’s Audit of the DBA Program.....12
DOD’s Response to GAO’s Audit of the DBA Program...........13
U.S. Army Corps of Engineers (USACE) Pilot Program..........13
GAO Re-Examination of the DBA Program....................14
Costs to the Federal Government.....................................14
DBA Costs Associated with the Department of the Army’s Logistics
Civil Augmentation Program (LOGCAP) Contract..............15
U.S. Army Audit Agency (USAAA) Report on DBA Insurance under
LOGCAP ...........................................17
Options for Congress..............................................19
P.L. 110-417, the FY2009 NDAA, as an Outline for Possible
DBA Reform............................................19
Single-Source Contract for DBA Insurance.........................20
Experience Rating for DBA Insurance............................21
Federal Self-Insurance ........................................22
Appendix: List of Acronyms........................................24



List of Tables
Table 1. Workers’ Compensation Coverage, Benefits, and Costs for the United
States, 2005..................................................1
Table 2. Total Defense Base Act (DBA) Payments, 1997 to 2007............4
Table 3. DBA Insurance Premiums for the U.S. Army Corps of Engineers
(USACE) Pilot Program, the Department of State (DOS), and the U.S.
Agency for International Development (USAID), 2008...............16
Table 4. Defense Base Act (DBA) Premiums for the Logistics Civil
Augmentation Program (LOGCAP) Contract in Iraq and Kuwait,
FY2002 to FY2006...........................................18
Table 5. Defense Base Act (DBA) Premiums and Claims for the Logistics
Civil Augmentation Program (LOGCAP) Contract in Iraq and Kuwait,
FY2003 to FY2005...........................................19



The Defense Base Act (DBA): The Federally
Mandated Workers’ Compensation System
for Overseas Government Contractors
Workers’ Compensation in the United States
Over 130 million private and public sector employees in the United States are
covered by some form of workers’ compensation.1 Although the details of the various
state and federal workers’ compensation systems differ, all workers’ compensation
systems in the United States provide for limited wage replacement and full medical
benefits for workers who are injured or become ill as a result of their work and
survivors benefits to the families of workers who die on the job. In most cases,
workers’ compensation is mandated by state law and administered by state agencies.
However, for some classes of workers, workers’ compensation is mandated by
federal law and provided or administered by the federal government. Table 1
provides summary data on workers’ compensation in the United States.
Table 1. Workers’ Compensation Coverage, Benefits,
and Costs for the United States, 2005
Covered workers (in millions)128.1
Covered wages (in billions of $)5,212
Total benefits paid (in billions of $)55.3
Medical benefits paid (in billions of $)26.2
Cash benefits paid (in billions of $)29.1
Employer costs (in billions of $)a88.8
Source: Ishita Sengupta, Virginia Reno, and John F. Burton, Jr., Workers’ Compensation: Benefits,
Coverage, and Costs, 2005, (Washington: National Academy of Social Insurance 2007), p. 2.
a. Employer costs include costs paid for workers compensation insurance or costs paid for benefits
and administration by self-insured firms.


1 Ishita Sengupta, Virginia Reno, and John F. Burton, Jr., Workers’ Compensation: Benefits,
Coverage, and Costs, 2005, (Washington: National Academy of Social Insurance 2007), p.

9. Hereafter cited as Sengupta et al., Workers’ Compensation, 2007.



The workers’ compensation system is a no-fault system that pays workers for
injuries or illnesses related to employment without considering the culpability of any
one party. In exchange for this no-fault protection and the guarantee of benefits in
the event of an employment-related injury, illness, or death, workers give up their
rights to bring actions against employers in the civil court system and give up their
rights to seek damages for injuries and illnesses, including pain and suffering, outside
of those provided by the workers’ compensation laws. With limited exceptions,
injuries, illnesses, or deaths that are the result of accidents or incidents that occur in
the workplace or that are the result of activities related to employment are covered
by workers’ compensation.2
State and federal laws differ on how private employers may meet their
responsibilities to insure against the economic losses to employees from workplace
injuries and illnesses. In nearly every state and federal system, firms can self-insure
or purchase workers’ compensation insurance from private providers or, in some
states, from state funds.3
Federal Workers’ Compensation
Workers’ compensation policy is largely determined by the individual states.
Each state and the District of Columbia, with the exception of Texas, has its own
basic workers’ compensation policy that mandates that private-sector employers and
state and local government agencies insure against the financial damages caused by
employment-related injuries and illnesses and provide no-fault cash and medical
benefits to employees who are injured, killed, or become sick on the job.4
The federal government has only a limited role in the workers’ compensation
system and administers workers’ compensation programs for federal employees and
several limited classes of private-sector workers. In 2005, state workers’
compensation programs paid $52.1 billion, or 94.2%, of the $55.3 billion in total
cash and medical benefits paid by the workers’ compensation system; federal
workers’ compensation programs paid $3.2 billion, or 5.8%, of total workers’
compensation benefits.5


2 Common exceptions to coverage include injuries caused by the willful misconduct of an
employee, the drug or alcohol use of an employee, or “acts of God.” Traditionally, only
injuries or deaths that resulted from specific accidents were covered by workers’
compensation. Modern workers’ compensation systems now generally provide coverage for
illnesses or other conditions, such as hearing loss, that are the result of prolonged exposure
to a dangerous workplace environment.
3 In five states, firms are required to purchase workers’ compensation from state funds.
Federal agencies that provide workers’ compensation for their employees essentially self-
insure and are responsible for 100% of the cost of all benefits paid.
4 The Texas workers’ compensation system is not mandatory for private-sector employers
in that state. However, private-sector employers who do not participate in the workers’
compensation system can be sued for damages by employees injured on the job.
5 Sengupta et al., Workers’ Compensation, p. 19.

With limited exceptions, the federal government has traditionally left workers’
compensation law and policy to the states. However, the federal government has
intervened in workers’ compensation policy in three cases. First, the federal
government administers a workers compensation program for most federal
employees under the Federal Employees’ Compensation Act (FECA). Second, the
federal government administers workers’ compensation programs for the longshore
and harbor and railroad industries because of the interstate nature of those industries.
Third, the federal government administers limited workers’ compensation systems
for coal miners with black lung disease and energy workers with cancer and other
diseases caused by exposure to radiation and other toxic substances because state
workers’ compensation systems have proven unable to provide adequate coverage for
these conditions.
The Defense Base Act (DBA)
The Defense Base Act (DBA) requires that many federal government
contractors and subcontractors provide workers’ compensation insurance for their
employees who work outside of the United States.6 Under the provisions of the
DBA, overseas federal military and public works contractors are subject to the same
workers’ compensation rules, including the same insurance requirements and same
schedules of benefits for affected workers, as maritime firms covered by the
Longshore and Harbor Workers’ Compensation Act (LHWCA). DBA insurance is
provided by private companies or through self-insurance and the DBA program is
administered by the Department of Labor (DOL). Like all workers’ compensation
systems, the DBA provides no-fault coverage and is an exclusive remedy to injured
workers. Injured workers and the survivors of workers killed on the job are entitled
to benefits for employment-related injuries, illnesses, and deaths regardless of fault
and are not permitted to sue their employers or the federal government for any types
of damages caused by employment-related incidents.
Prior to the start of Operation Iraqi Freedom (OIF) in 2003, DBA benefits were
paid to several hundred claimants per year. OIF was accompanied by an increase in
the number of DBA cases and the total amount spent on DBA claims. The number
of DBA cases continues to grow with the caseload increasing more than six-fold
between 2004 and 2007 and with 2007 having the largest caseload of the entire OIF
period. The average amount of compensation and medical benefits paid per claim
in 2007, however, was at the lowest level since 2003. DOL reports that the increase
in cases in 2007 was due, in part, to greater compliance efforts that resulted in firms
reporting a greater number of claims that involved only minor medical care and no


6 The provisions of the Defense Base Act (DBA) are provided in statute at 42 U.S.C. §§

1651-1654 and as part of the Longshore and Harbor Workers’ Compensation Act (LHWCA)


at 33 U.S.C. §§ 901-950. Regulations implementing the DBA are provided in Parts 701-704
of Title 20 of the Code of Federal Regulations (CFR) and in the Federal Acquisition
Regulation at 48 C.F.R. §§ 28.305, 52.228-3, and 52.228-4.

lost work time.7 Table 2, below, provides an overview of DBA claims paid between

1997 and 2007.


Table 2. Total Defense Base Act (DBA) Payments, 1997 to 2007
Medical
Cash BenefitsBenefits for
for WageCoveredAverage
Cases Loss andInjuries andTotal Benefits
YearPaidSurvivors ($)Illnesses ($)Benefits ($)per Case ($)
1997 432 4,905,081 1,203,217 6,108,298 14,140
1998 423 5,497,439 2,194,012 7,691,451 18,138
1999 269 3,724,290 1,727,703 5,451,993 20,268
2000 309 6,268,112 2,314,654 8,582,766 27,776
2001 516 7,212,869 2,198,061 9,410,930 18,238
2002 430 5,480,592 2,101,403 7,581,995 17,633
2003 688 7,885,666 3,452,728 11,338,394 16,480
2004 1,592 19,432,369 10,647,020 30,079,389 18,894
2005 3,080 36,140,994 23,656,467 59,797,461 19,415
2006 5,039 66,973,732 48,781,929 115,755,661 22,972
2007 11,887 100,319,949 69,815,704 170,135,653 14,313
Source: Defense Base Act Insurance: Are Taxpayers Paying Too Much?: Hearing Before the Houseth
Committee on Oversight and Government Reform, 110 Cong., (2008), statement of Shelby Hallmark,
Director, Office of Workers Compensation Programs, Department of Labor.
Legislative History
The Defense Base Act, P.L. 77-208, was enacted in 1941 and extended workers’
compensation coverage under the Longshore and Harbor Workers’ Compensation
Act (LHWCA) to persons working on American military bases that were either
acquired by the United States from foreign countries or that were located outside of
the continental United States. Coverage was extended to public works contractors
working outside of the United States in 1942 with the enactment of the War Hazards
Compensation Act, P.L. 77-784, which also established the War Hazards
Compensation Act (WHCA) program. The most significant amendments to the DBA
were enacted in 1958 and extended coverage to non-citizens, to persons working on
projects funded under the Mutual Security Act of 1954, and to persons working to
provide morale and welfare services, such as through the United Service
Organizations (USO) to the armed forces. These amendments also further defined


7 Defense Base Act Insurance: Are Taxpayers Paying Too Much?: Hearing Before the
House Committee on Oversight and Government Reform, 110th Cong., (2008), statement of
Shelby Hallmark, Director, Office of Workers’ Compensation Programs, Department of
Labor. Hereafter cited as Hallmark testimony, 2008.

the types of work covered under the DBA to include service contracts.8 In 2006,
Congress directed the Department of Defense (DOD) to examine ways it could
improve its DBA procedures.9 Legislation passed by the House of Representatives
in 2008 would require DOD to establish a single DBA strategy and provides a list of
options for DOD to consider when designing this strategy.10
Major New Developments
The Duncan Hunter National Defense Act for FY2009 (P.L. 110-417) was
signed into law on October 14, 2008. Section 843 of the act requires DOD to adopt
an acquisition strategy that minimizes insurance cost for both DOD as well as DOD
contractors. The acquisition strategy must consider the following criteria:
(1) Minimize overhead costs associated with obtaining such insurance, such as
direct or indirect costs for contract management and contract administration;
(2) Minimize costs for coverage of such insurance consistent with realistic
assumptions regarding the likelihood of incurred claims by contractors of the
Department;
(3) Provide for a correlation of premiums paid in relation to claims incurred that
is modeled on best practices in government and industry for similar kinds of
insurance;
(4) Provide for a low level of risk to the Department; and
(5) Provide for a competitive marketplace for insurance required by the Defense11
Base Act to the maximum extent practicable.
Other provisions of the bill require that DOD consider several options, including
entering into a single DBA insurance contract. The Secretary of Defense is required
to submit a report to certain congressional committees within 270 days of the bill’s
enactment (on or about July 14, 2009) including a discussion of each option, and a
plan to implement the acquisition strategy within nine months following the report
issuance. Additionally, the Secretary of Defense is required to review the acquisition
strategy adopted, at least once every three years.
Basic Provisions of the Defense Base Act (DBA)
The DBA extends the provisions of the LHWCA to federal contractors working
outside of the United States. The LHWCA is a federal law that requires that private-
sector firms provide workers’ compensation coverage for their employees engaged


8 P.L. 85-477 extended DBA coverage to contracts under the Mutual Security Act of 1954
and to morale and welfare workers; it also further defined public works contracts and
extended coverage to service contracts. P.L. 85-602 extended DBA coverage to non-citizens.
9 P.L. 109-163.
10 H.R. 5658. The Senate has not taken any action on this bill.
11 Section 843, P.L. 110-417.

in longshore, harbor, or other maritime occupations.12 Workers’ compensation
insurance under the LHWCA can be provided either by a private carrier approved by
the DOL or through a self-insurance system.
Injured workers covered by the LHWCA and DBA are entitled to full medical
benefits to treat their injuries provided by a physician of their choice. Injured
workers are also entitled to cash disability benefits to replace a portion of their lost
wages. The basic weekly LHWCA and DBA disability benefit is equal to two-thirds
of a worker’s pre-disability weekly wage. Under the LHWCA and DBA, benefits for
total disability are capped at 200% of the national average weekly wage; benefits for
partial disability are capped on the basis of a schedule of impairments.13 Benefits are
also paid to survivors of covered workers killed on the job.
DBA Eligibility
Section 1 of the DBA applies the basic workers’ compensation protections and
benefits of the LHWCA to the following four categories of private-sector employees
working as federal contractors:
!employees who work on U.S. military, air or naval bases outside of
the United States, including bases located in U.S. territories;
!employees who work on public works projects outside of the United
States under contract to any federal agency;
!employees who work outside of the United States on projects funded
by the federal government under the provisions of the Mutual
Security Act of 1954 that provide for the sale of military equipment
or services to American allies;14 or
!employees who work for American firms providing morale, welfare,
or similar services to the armed forces outside of the United States.
Work performed under a grant from the federal government is not covered by the
DBA.15


12 33 U.S.C. §§ 901-950.
13 For example, a covered worker is entitled to receive benefits for a maximum of 312 weeks
if he or she loses an arm at the shoulder and 160 weeks if he or she loses an eye. The
complete schedule of maximum partial disability benefits is provided in law at 33 U.S.C.
§ 908(c).
14 The Mutual Security Act of 1954 was replaced by the Foreign Assistance Act, codified
at 22 U.S.C. § 2151 et seq., in 1961. For additional information on the Foreign Assistance
Act, see CRS Report RL34243, Foreign Aid Reform: Issues for Congress and Policy
Options, by Susan B. Epstein and Connie Veillette.
15 The U.S. Court of Appeals for the Second Circuit held in University of Rochester v.
Hartman, 618 F. 2d. (2nd Cir. 1980), that an employee injured in Antarctica while working
on a scholarly research project funded through a grant from the National Science Foundation
was not covered by the DBA. DOL has adopted a position, which it claims is consistent
with this decision, that work done pursuant to a federal grant is not covered by the DBA.

DBA Insurance
The DBA is a privatized workers’ compensation insurance program. Benefits
are not paid by the federal government but rather are the responsibility of a covered
worker’s employer. Employers subject to the DBA can purchase insurance from a
private provider approved by the DOL or, with the permission of DOL, self-insure.
Firms that fail to provide compensation for their injured employees covered by the
DBA can be subject to criminal prosecution and the firm and its officers can be
subject to civil suits brought by the injured workers.
Insurance Through Private Carriers. Contractors covered by the DBA
may purchase workers’ compensation insurance from private carriers approved by
the DOL. Currently, the major providers of DBA insurance coverage are ACE-USA,16
American International Group (AIG), and CNA.
Self-Insurance. Insurance prices can be quite variable, moving between “hard
market” periods with higher premiums and difficulties for consumers finding
insurance and “soft market” periods with low premiums and relatively easy
availability. Particularly when faced with high premiums, some insurance consumers
choose not to purchase insurance from an insurance company but instead choose to
“self-insure.” Self-insurance is a very broad term, possibly covering any situation in
which an entity chooses to retain a risk rather than purchasing insurance. Self-
insurers can cover a spectrum from (1) entities who essentially ignore a risk and take
few, if any, steps to financially prepare for a loss; to (2) entities who consider and
evaluate risks, while perhaps setting up some sort of savings or reserve accounts to
pay for future losses; to (3) entities who set up a legally licensed insurance company,
known generally as a captive insurer, to whom actuarially determined premiums are
paid but ownership of the insurer is retained by the insured, so both profits and risks
are also retained by the insured.
Because the DBA mandates workers’ compensation insurance for federal
contractors overseas, the first self-insurance option, essentially ignoring the risk, is
generally not an option. Under the DBA, however, employers do have the option to17
self-insure if they meet certain financial criteria and are approved to do so by DOL.
Under the federal regulations, self-insurers are not required to go so far as to set up
captive insurers in order to self-insure. Nearly 170 employers are listed by DOL as
authorized self-insurers.18 Firms may also self-insure under most state workers’
compensation laws, and according to the Self-Insurance Institute of America, more
than 6,000 corporations and their subsidiaries self-insure their workers’


16 Department of Labor, Defense Base Act: Workers’ Compensation for Employees of U.S.
Government Contractors Working Overseas, page 2, available on the website of DOL at
[http://www.dol.gov/esa/owcp/dlhwc/ExplainingDBA.pdf]. A complete list of authorized
DBA carriers is available on the website of DOL at [http://www.dol.gov/esa/owcp/
dlhwc/lscarrier.htm] .
17 The DOL’s Procedure Manual outlining the authorization of self-insurers is available on
the website of the DOL at [http://www.dol.gov/esa/owcp/dlhwc/lspm/lspm7-400.htm]. The
full regulations for self-insurers can be found at 20 CFR §§ 703.301-703.313.
18 See the website of the DOL at [http://www.dol.gov/esa/owcp/dlhwc/lscarrier.htm].

compensation risks.19 Many self-insurers still purchase some form of insurance,
typically a “catastrophic” policy that would take effect if extraordinarily high losses
occurred, and federal rules actually require such a policy. Many self-insurers also
hire third-party administrators, who undertake much of the administrative burden of
dealing with claims but without assuming any of the financial risk.
Choosing to self-insure is a decision taken on a wide variety of business
grounds. In general, those self-insuring are seeking to reduce insurance costs and
ensure the availability of insurance. Self-insurance can reduce costs through three
primary mechanisms. First, any profits that would have flowed to the insurer could
be captured by the self-insurer; second, the self-insurer may be able to save on
administrative costs, either by undertaking the administration in-house or finding a
more efficient third-party administrator; and third, if the self-insurer is a relatively
low-risk, its costs would be lower if it were not pooled with other, higher risk parties.
DBA Waivers
The Secretary of Labor may, at the request of a federal agency, grant a waiver
that exempts a firm from the DBA if the firm can demonstrate that an alternative
workers’ compensation system that provides benefits in the case of disability or death
is in place to cover the firm’s employees. DBA waivers do not apply to American
citizens or nationals or to persons hired within the United States.
DBA Benefits for Foreign Nationals
The DBA covers all eligible federal contractors, including non-U.S. citizens and
foreign nationals. Foreign nationals receive the same DBA benefits as U.S. citizens
or nationals with two exceptions. First, benefits for the survivors of a foreign
national who was not a resident of the United States or Canada are only available to
the worker’s surviving spouse and children or, if there is no spouse or children, the
worker’s surviving father or mother, provided that the worker supported the father
or mother for at least one year before the worker’s death. The eligibility for survivors
benefits for foreign nationals is more limited than that for American citizens and
nationals. Survivors benefits in the case of the death of an American citizen or
national can be paid to the worker’s spouse, children, siblings, parents, grandparents,
or grandchildren.
Second, permanent disability benefits or survivors benefits payable for foreign
nationals who are not residents of the United States or Canada may be commuted
from installment payments to a single lump-sum payment equal to one-half of the
present value of the future compensation. The decision to commute benefit payments
for foreign nationals is made by the Secretary of Labor and can be requested by the
insurance carrier responsible for paying benefits.


19 Self-Insurance Institute of America, Workers’ Compensation Programs, available on the
website of the Self-Insurance Institute of America at [http://www.siia.org/i4a/pages/
index.cfm?pageid=3284].

DBA Administration
The DBA is administered by the DOL, Office of Workers’ Compensation
Programs (OWCP), Division of Longshore and Harbor Workers’ Compensation
(DLHWC). DBA claims are processed through one of ten regional offices, with all
claims originating in Iraq and Afghanistan processed through the New York office.
Dispute Resolution. An applicant dissatisfied with the decision made on his
or her DBA claim may request a hearing before a DOL Administrative Law Judge
(ALJ). The decision of a DOL ALJ can be appealed to the DOL Benefits Review
Board, and the decisions of this board may be appealed to the U.S. District Court.
In addition to this formal process for adjudicating claims, the DOL has an informal
dispute resolution process that seeks to bring the worker and his or her insurer or
employer together either over the telephone or in an informal conference to resolve
the dispute before an ALJ hearing is required. DOL reports that 8.2% of all DBA
cases originating in Iraq or Afghanistan between 2001 and 2005 involved claims
disputes.20
War Hazards Compensation Act (WHCA)
The War Hazards Compensation Act (WHCA) supplements the DBA by
providing a form of reinsurance for injuries and deaths to contractors directly related
to military conflict.21 If an employee’s injury or death is caused by a war hazard, the
workers’ compensation benefits are provided not by the insurer or employer but by
the federal government. Under the provisions of the WHCA, an injury or death is
considered to have been caused by a war hazard if it occurred during
!a war in which the United States is engaged;
!an armed conflict in which the United States is engaged, whether or
not war has been formally declared; or
!during a war or armed conflict between military forces of any origin
in a country in which a covered employee is working;22
and if the injury or death was caused by
!the discharge of any weapon by a hostile force or in combating an
attack;
!the action of a hostile force or person, including an insurrection or
rebellion against the United States;


20 Hallmark testimony, 2008.
21 42 U.S.C. § 1701 et seq.
22 For the purposes of the WHCA, a covered employee includes any person covered under
the DBA, any person working outside of the United States under a personal services contract
with the federal government, and any person working as a civilian employee paid by non-
appropriated funds under the jurisdiction of the Department of Defense, such as an
employee of a military post exchange or officer’s club.

!the discharge of any munitions intended for use against a hostile
force;
!the collision of vessels in convoy, or the operation of vessels or
aircraft without running lights or other aids to navigation;
!the operation of vessels or aircraft in a hostile zone or engaged in
war activities.
Generally, an insurance carrier or self-insured employer will first pay DBA
benefits to an injured worker or his or her survivors and then seek reimbursement
from DOL under the WHCA. Insurers and employers may be reimbursed for benefits
paid and itemized and non-itemized administrative costs associated with the claim.
Non-itemized administrative costs are capped by regulation at 15% of the total value
of the benefits due on a claim.23 A claim is not reimbursed under the WHCA if the
insurance carrier charged an additional premium, referred to as premium loading, to
cover the specific war hazard that caused the injury or death.
WHCA benefits are paid out of the Employees’ Compensation Fund, which also
pays workers’ compensation benefits for federal employees under the Federal
Employees’ Compensation Act (FECA).24 The WHCA is administered by the DOL
OWCP Division of Federal Employees’ Compensation (DFEC), and the DFEC
makes determinations on whether claims should be paid under the WHCA.
WHCA claims make up a relatively small percentage of the total DBA claims
that originate in Iraq and Afghanistan. Between 2003 and the end of March 2008,
over 27,000 DBA claims have been filed for cases originating in Iraq and
Afghanistan. However, during that same time period, 252 WHCA claims have been
filed.25 Thus, even in two military operations in which the United States is fighting
insurgent enemy forces without clearly established front lines and in which
contractors are playing significant roles, WHCA claims make up less than 1% of all
DBA claims filed. Among the WHCA cases that have been paid since 2003, a total
of $5,207,461 has gone for compensation and benefits, whereas $7,610,260 has gone
to reimburse insurers for itemized and non-itemized administrative expenses
associated with these claims.26
Selection of Defense Base Act (DBA) Providers
Although many federal agencies have had or currently have overseas contracts
subject to the DBA, the Departments of State (DOS) and Defense (DOD) and the
U.S. Agency for International Development (USAID) are the major DBA contractors
operating in Iraq and Afghanistan. These agencies take different approaches to
contracting for insurance services under the DBA. DOS and USAID have awarded
competitive contracts through the use of blanket contracts, with fixed rates, to a
single provider for each agency. In contrast, under the DOD approach private


23 20 C.F.R. § 61.104.
24 The Federal Employees’ Compensation Act (FECA) is codified at 5 U.S.C. § 8101 et seq.
25 Hallmark testimony, 2008.
26 Id.

contractors negotiate individually with private insurers. Over time, evidence has
shown that rates for DBA insurance charged to DOD have been significantly higher
than DBA insurance rates for DOS and USAID.27
Much of the recent attention focused on the DBA program has been due to the
media reports of the experience of contractors in combat operations in Iraq and
Afghanistan. According to testimony at a recent congressional hearing on the DBA,
90% of DBA business is for DOD contracts.28 The DBA program came to the
attention of the media in part because of a lawsuit filed against Blackwater
Worldwide by the families of four contractor employees killed in Iraq in March 2004.
Blackwater Worldwide had asserted that it was immune from any civil litigation
because the contractor employees were working under a contract with DOD and thus
covered by the exclusive remedy of the DBA. This case, as well as a countersuit
against the plaintiffs filed by Blackwater Worldwide, is pending.29
Department of State (DOS) and the
U.S. Agency for International Development (USAID)
Before 1990, DOS required contractors to obtain DBA insurance independently,
resulting in a variety of rates on the basis of company size, claims history, and work
site. This arrangement proved particularly onerous for small businesses with limited
overseas experience. Such companies found it difficult to obtain insurance, and
when insurance was possible, they paid significantly higher premiums. However, a
DOS Inspector General (IG) found that costs could be reduced through the use of a
blanket contract to a single provider. In 1991, DOS competitively awarded a multi-
year contract to CIGNA Property and Casualty Insurance Company. As a result, in
2000 DOS conducted a competition for a follow-on, multi-year contract. Four
companies competed: CIGNA, AIU, Ace International, and CNA. CNA was
competitively awarded the DOS contract in 2001 and has held the contract since that
time. DOS issued a formal notice in April 2008 of its intent to solicit bids for a
permanent contract for DBA insurance.30


27 Defense Base Act Insurance: Are Taxpayers Paying Too Much?: Hearing Before the
House Committee on Oversight and Government Reform, 110th Cong., (2008), statement of
John K. Needham, Director, Acquisition and Sourcing Management Issues, Government
Accountability Office. Hereafter cited as Needham testimony, 2008.
28 Defense Base Act Insurance: Are Taxpayers Paying Too Much?: Hearing Before the
House Committee on Oversight and Government Reform, 110th Cong., (2008), statement of
Hon. Henry Waxman, Chairman.
29 The U.S. District Court case involving Blackwater’s petition for arbitration is currently
stayed pending an appeal before the U.S. Court of Appeals (Blackwater Security v. Nordan,
No. 07-1508 (4th Cir.)); a related case is also pending in the Superior Court of Wake
County, North Carolina (Nordan v. Blackwater Security Consulting, No. 07CVS7061).
30 Defense Base Act Insurance: Are Taxpayers Paying Too Much?: Hearing Before the
House Committee on Oversight and Government Reform, 110th Cong., (2008), statement of
William Moser, Deputy Assistant Secretary of State for Logistics Management, Department
of State.

USAID, like DOS, has a single insurer program that requires all contractors
performing work overseas to purchase DBA insurance from a specific insurance
carrier at a set rate. USAID’s current rate for DBA insurance is the lowest among the
three agencies, at $1.58 per $100 of salary costs. This is a single rate for DBA
coverage for all USAID contractors worldwide.31
Department of Defense (DOD)
The Department of Defense (DOD) permits its overseas contractors to purchase
DBA insurance from any insurance company approved by DOL. In 1996, DOD
studied the DBA issue and compared its rates with a sampling of rates paid by DOS
and USAID. At that time, DOD officials concluded that their rates were lower, in
most cases, than rates paid by DOS and USAID, and that DOD contractors as a
whole did not report difficulty in securing appropriate DBA insurance coverage for
their employees. Furthermore, DOD rejected the use of a single payer insurance
system, reportedly because of the opinion that such a system would not provide
enough incentives for companies to improve safety practices to keep rates more
competitive.
Government Accountability Office (GAO) Audit and Review of the
DBA Program. Largely in response to congressional concerns, the Government
Accountability Office (GAO) conducted an audit and review of the entire DBA
program in April 2005.32 GAO reviewed DBA claims for DOS, USAID, DOD, and
other federal agencies that have issued contracts for Iraq reconstruction and to
support deployed forces. In its investigation, GAO reported significant problems
with its ability to determine the total cost of the program because it was difficult to
gather and analyze data on large numbers of contractors and multiple layers of
subcontractors. GAO found it difficult to analyze wide variations in the amounts
federal government agencies were paying for DBA insurance or explain inordinate
delays in the processing of claims. GAO also reported that it could not calculate the
impact that DBA insurance costs had on reconstruction activities in Iraq. GAO found
that DOD contractors were being charged premiums that ranged between $10 and
$21 per $100 of employee salary.33 Thus, if an employee earned $100,000 a year,
DBA insurance costs could run as high as $21,000.
Congressional Response to GAO’s Audit of the DBA Program.
Largely as a result of the GAO report, Congress, with the passage of the National
Defense Authorization Act for FY2006, P.L. 109-163, directed DOD to conduct a


31 Needham testimony, 2008.
32 Government Accountability Office, Defense Base Act Insurance: Review Needed of Cost
and Implementation Issues, GAO 05-280R, (Washington: GPO 2005), p. 1. GAO reports
that over 100 Members of Congress requested a review of a number of Iraq-related issues,
including issues involving the DBA. The Comptroller General initiated this review under
his statutory authority and the objectives of this review were, according to the final report,
“to identify the cost to the Federal government for all insurance coverage purchased under
DBA and to assess the Act’s implementation.”
33 Id., p. 4.

full review of its DBA program. Section 1041 of P.L. 109-163 requires that this
review address
!cost-effective options for acquiring DBA insurance;
!methods for coordinating DBA data collection efforts among
agencies and contractors;
!improved communication and collaboration within and among
agencies on DBA insurance implementation; and
!actions to be taken to address difficult DBA issues including cost,
data, enforcement, and claims processing.
Section 1041(c) of the law also required DOD to submit to Congress a report
on the results of its review of the agency’s DBA policies and procedures.
DOD’s Response to GAO’s Audit of the DBA Program. In response to
the requirements of Section 1041(c) of P.L. 109-163, DOD issued a report to34
Congress on its DBA activities in February 2007. DOD’s report discussed DBA-
related data collection efforts among various federal government agencies.
According to the DOD report, since 2003, DOL has provided the Special Inspector
General for Iraq Reconstruction (SIGIR) with quarterly reports of DBA claims35
activity in Iraq. According to the report, while DOL has statutory responsibility for
administering the DBA claims processing for all agencies, federal agencies do not
undertake independent efforts to collect specific DBA data. According to the report,
“such data collection efforts would be expensive and would divert already limited36
contracting resources, without any clear benefit to the procurement process.” The
report later asserts that DOD does not view any additional independent data
collection efforts on its part as necessary stating that DOL already provides for
sufficient collection of DBA data and is responsible for monitoring the processing
of DBA claims. DOD also stated that its personnel with responsibilities for overseas
contracting are already aware of the DBA and its various requirements.37
U.S. Army Corps of Engineers (USACE) Pilot Program. Shortly after
the 2005 GAO report, DOD began working closely with the U.S. Army Corps of


34 Department of Defense. Report to Congress: Review of DBA Insurance pursuant to the
National Defense Authorization Act for Fiscal Year 2006, February 27, 2007, p. 5.
Hereafter cited as DOD, Report to Congress, 2007.
35 The Special Inspector General for Iraq Reconstruction (SIGIR) replaced the Inspector
General for the Coalition Provisional Authority (CPA-IG) in 2004 with the enactment of the
Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005, P.L. 108-375.
As provided for in P.L. 108-106, the SIGIR provides for independent and objective audits,
analyses, and investigations into the use of U.S.-appropriated resources for Iraq relief and
reconstruction. The SIGIR, Stuart W. Bowen, Jr., was appointed as CPA-IG on January 20,
2004. He reports to both DOS and DOD, provides quarterly reports and semi-annual reports
to Congress, and has offices in Baghdad and Arlington, VA. For a summary of the history
of U.S. reconstruction assistance in Iraq, see CRS Report RL31833, Iraq: Recent
Developments in Reconstruction Assistance, by Curt Tarnoff.
36 DOD, Report to Congress, 2007, p. 3.
37 Id. p. 4.

Engineers (USACE) to conduct a competition to award a contract for a pilot DBA
project based on the DBA programs already in place at DOS and USAID. CNA was
the only company to submit a proposal and was awarded the contract. The contract
was awarded in November 2005 and coverage began in December 2005 with
coverage extending through March 2008.
DOD’s report to Congress discussed the early results under the USACE pilot
program. After the first six months of the pilot program, USACE reported that
estimated savings to the federal government on DBA insurance costs already had
exceeded more than $19 million.38 On the basis of these results, the pilot program
was extended through September 2008. The Department of the Army announced that
a new contract will soon be competitively awarded for a permanent single-insurer
program. At the May 15, 2008, hearing of the House Committee on Oversight and
Government Reform on the DBA, Richard Ginman of the Office of the Deputy
Undersecretary of Defense for Acquisition, Technology and Logistics, projected that
continued success with the USACE pilot program would, in all likelihood, make it
a permanent DOD program stating:
Although the contract for the pilot program is continuing, the USACE in
February 2008 decided to make the program permanent. A goal of the pilot
program was to provide data to build and present to our office and the Army, a
formal business case to determine if the pilot should be expanded Army or DoD-
wide. To help USACE develop such a case, the Army Audit Agency recently
agreed to the Army’s request (through the Deputy Assistant Secretary of the
Army, Policy and Procurement) to review the results of the two-year pilot
program to determine if it warranted permanent placement at the USACE and
warrant further extension in the Army. Once Army Audit’s review is complete,
USACE will develop the business case and we will review the results to39
determine the Department’s next steps.
GAO Re-Examination of the DBA Program. The GAO examined the
DBA program again in 2008 and reported that although DOD’s single insurer pilot
program through USACE has reduced DOD’s DBA rates, DOD has not implemented
a department-wide program to reduce rates. GAO also concluded that DOD lacks
reliable data on the total amount of funds spent on DBA insurance claims across the
agency. 40
Costs to the Federal Government
Although the DBA requires that federal contractors working overseas either
purchase workers’ compensation insurance for their employees or self-insure, the
costs of this insurance is usually passed along to the federal government as a cost


38 Id. p. 5.
39 Defense Base Act Insurance: Are Taxpayers Paying Too Much?: Hearing Before the
House Committee on Oversight and Government Reform, 110th Cong., (2008), statement of
Richard Ginman, Deputy Director for Defense Procurement and Acquisition Policy, Office
of the Deputy Under Secretary of Defense for Acquisition, Technology and Logistics.
40 Needham testimony, 2008.

item in the contract. If the agency is purchasing services under a cost-plus contract,
the contractor receives a set percentage of the total cost of all items, including DBA
insurance, billed to the federal government. In cost-plus contracts, the contractor’s
fees rise with contract costs. There is no incentive for the contractor to limit the
government’s costs.
Because DOD requires that nearly all of its contractors purchase DBA insurance
separately, it is not possible to compare its overall DBA costs with those of DOS and
USAID. However, it is possible to compare the costs of DBA insurance purchased
through the USACE pilot program with the costs of DBA insurance paid by DOS and
USAID contractors. In 2008, USAID contractors paid the lowest DBA insurance
premiums at $1.58 per $100 in payroll for all workers. Contractors in the USACE
pilot program paid lower premiums than did DOS contractors on their service
workers. Table 3, below, provides DBA insurance premiums for contractors in the
USACE pilot program, DOS and USAID.
DBA Costs Associated with the Department of the Army’s
Logistics Civil Augmentation Program (LOGCAP) Contract
The Logistics Civil Augmentation Program (LOGCAP) was established by the
Department of the Army on December 6, 1985, with the publication of Army
Regulation 700-137. LOGCAP is an initiative to manage the use of civilian
contractors who perform services in support of DOD missions during times of war
and other military mobilizations.41 LOGCAP contracts are intended to augment
combat support and combat service support to military forces.42


41 For a detailed discussion of the origin, background, and current issues with the
Department of the Army’s LOGCAP program, see CRS Report RL33834, Defense Contracts
in Iraq, by Valerie Bailey Grasso.
42 Prior to OIF, LOGCAP contracts have been awarded for work in Rwanda, Haiti, Saudi
Arabia, Kosovo, Ecuador, Qatar, Italy, southeastern Europe, Bosnia, and South Korea.
Under LOGCAP, private sector contractors are used to provide a broad range of logistical
and other support services to U.S. and allied forces during combat, peacekeeping,
humanitarian and training operations.

Table 3. DBA Insurance Premiums for the U.S. Army Corps of
Engineers (USACE) Pilot Program, the Department of State
(DOS), and the U.S. Agency for International Development
(USAID), 2008
Premium forPremium for
Service WorkersConstruction
(rate per $100 inWorkers (rate per
AgencyInsurersalary)$100 in salary)
USACE Pilot
Program CNA $3.50 $7.25
DOSaCNA$3.87 to $6.45$5.00 to $8.34
USAIDCNA$1.58 (for all workers)
Source: Congressional Research Service (CRS) table compiled from Defense Base Act Insurance: Are
Taxpayers Paying Too Much?: Hearing Before the House Committee on Oversight and Governmentth
Reform, 110 Cong., (2008), statements of James Dalton, Chief of Engineering and Construction, U.S.
Army Corps of Engineers; William Moser, Deputy Assistant Secretary of State for Logistics
Management, Department of State; and John Needham, Director, Acquisition and Sourcing
Management Issues, Government Accountability Office.
a. DOS contractors pay separate premiums of $10.30 for security services without aviation and
$17.50 for security services with aviation.
Although the LOGCAP program began in 1985, the program has been the
subject of intense scrutiny since the start of OIF. The LOGCAP troop support
contract in Iraq has been the subject of several congressional hearings. The contract
is the largest single contract for combat operations in Iraq to date. Policymakers
continue to express concern over the reported lack of oversight of LOGCAP
contracts in Iraq for several reasons, including the expense and difficulty of managing
large-scale logistical support contracts; allegations and reported instances of contract
waste, fraud, abuse, and financial mismanagement; and questions regarding DOD’s
ability and capacity to manage such contracts.43 Congressional concerns over the
DBA insurance program have been driven, in part, by the lack of transparency and
oversight of the overall costs incurred under the LOGCAP program.
Recent assessments from the GAO, DOD’s Inspector General (IG), and the
SIGIR reveal a lack of federal oversight, management, and accountability for funds
spent for Iraq contracting. An audit conducted by the DOD IG revealed that the
federal government failed to substantiate the disbursement of at least $7.8 billion of
$8.2 billion dollars spent for goods and services in Iraq. In a May 22, 2008,
congressional hearing before the House Oversight and Government Reform
Committee, DOD officials revealed estimates that the Army disbursed $1.4 billion
in commercial payments that lacked the minimum supporting justification and
documentation for a valid payment, such as certified vouchers and invoices. In one


43 See the Special Inspector General for Iraq Reconstruction, Quarterly Report to Congress,
April 30, 2008.

reported instance, a $320 million payment in cash was made without justification
beyond a signature.44
U.S. Army Audit Agency (USAAA) Report on DBA Insurance under
LOGCAP. In early 2007, an audit of the DBA program was initiated by the U.S.
Army Audit Agency (USAAA) due to several factors, including the growing
complexity of the DBA program, rising program costs, wide fluctuations in insurance
rates, and the federal government’s efforts to reduce and avoid future program costs.45
In September 2007, the USAAA released its audit report.
Army auditors found that KBR, the LOGCAP contractor, paid approximately
$284.3 million in DBA premiums during the period from FY2003 through FY2005.
These premiums rose steadily each fiscal year from approximately $4.7 million in
FY2003 to approximately $164.7 million in FY2005.46 As a result of these
premiums, the auditors concluded that DBA insurance represented a “significant and
recently increasing cost element” of the overall LOGCAP contract.47
USAAA found that whereas total LOGCAP DBA costs rose between FY2003
and FY2005, DBA premiums for Iraq and Kuwait as a percentage of total payroll
increased from FY2003 to FY2004 and then declined in FY2005 and FY2006. The
audit also found that these rate fluctuations appeared inconsistent with the risks
associated with providing DBA insurance for this contract. In addition, the audit
found that the LOGCAP contractor reported accident rates that were lower than the
U.S. private industry average yet it was paying higher than industry-average worker’s
compensation premiums. Table 4 provides the LOGCAP DBA premiums for Iraq
and Kuwait for the period between FY2002 and FY2006.


44 Accountability Lapses in Multiple Funds for Iraq: Hearing Before the House Committee
on Oversight and Government Reform, 110th Cong. (2008), statement of Mary L. Ugone,
Deputy Inspector General for Auditing, Office of the Inspector General, Department of
Defense.
45 The USAAA does not publicly release its audit reports. However, the House Committee
on Oversight and Government Reform has posted a copy of this report, Audit of Defense
Base Insurance for the Logistics Civil Augmentation Program, Audit of Logistics Civil
Augmentation Program Operations in Support of Operation Iraqi Freedom, on its website
at [http://oversight.house.gov/documents/20080515102103.pdf].
46 During the period covered by the USAAA audit and this report, KBR was the exclusive
LOGCAP contractor under a contract referred to as LOGCAP III. On April 17, 2008 the
Department of the Army announced that it was awarded its latest LOGCAP contract, known
as LOGCAP IV, to KBR, DynCorp International, and Fluor Corporation.
47 U.S. Army Audit Agency, Audit of Defense Base Insurance for the Logistics Civil
Augmentation Program, Audit of Logistics Civil Augmentation Program Operations in
Support of Operation Iraqi Freedom, Audit Report A-2007-0204-ALL, September 28, 2007,
p. 5. Hereafter cited as USAAA, Audit of Defense Base Insurance.

Table 4. Defense Base Act (DBA) Premiums for the Logistics
Civil Augmentation Program (LOGCAP) Contract in Iraq and
Kuwait, FY2002 to FY2006
Percent Change in
Premium Premium from Previous
Fiscal Year(rate per $100 in salary)Fiscal Year
2002 3.75 NA
2003 3.75 0.0%
2004 16.20 332.0%
2005 13.80 (14.8%)
2006 8.50 (38.4%)
Source: U.S. Army Audit Agency, Audit of Defense Base Insurance for the Logistics Civil
Augmentation Program, Audit of Logistics Civil Augmentation Program Operations in Support of
Operation Iraqi Freedom, Audit Report A-2007-0204-ALL, September 28, 2007, p. 5.
Notes: Parentheses indicate a decrease from the previous fiscal year. Data does not include
subcontr actors.
Army auditors found that the Department of the Army paid “substantially” more
in DBA premiums than was expected to be paid out in DBA claims. The auditors
found that while $284.3 million in DBA premiums were paid under the LOGCAP
contract between FY2003 and FY2005, just under 26% of these premiums went to
pay the $73.1 million in DBA claims and potential future claims arising from cases
during this period.48 Table 5 provides data on LOGCAP DBA premiums and
potential claims for the period between FY2003 and FY2005.
One explanation offered by the USAAA for what it deemed as these “excessive”
premiums was the practice of basing DBA premiums on total payroll costs, including
costs such as overtime pay and hazard pay while basing DBA benefit amounts,
usually two-thirds of pre-injury wages, only on base pay.49 Auditors found that
between January 1, 2003, and September 30, 2005, KBR paid $23.1 million in
premiums on the special incentive payments made to its employees for the hazard pay
component of its payroll.50 In addition, DBA benefits, but not the wages used to
calculate DBA premiums, are capped, and thus a portion of the total premium is paid
on salary above the cap that will not be replaced by DBA disability benefits. Because
of this, KBR is essentially paying insurance on payroll that does not need to be
insured because it can not, by law, be replaced under the provisions of the DBA.


48 Id., p. 8.
49 In his testimony before the House Oversight Committee, Joseph Mizzoni of the USAAA
characterized the premiums paid by KBR for LOGCAP DBA insurance as “excessive”
(Defense Base Act Insurance: Are Taxpayers Paying Too Much?: Hearing Before the Houseth
Committee on Oversight and Government Reform, 110 Cong., (2008), statement of Joseph
Mizzoni, Deputy Auditor General for Acquisition and Logistics, U.S. Army Audit Agency).
In its response to the USAAA audit report, the U.S. Army Sustainment Command stated that
KBR, the LOGCAP contractor, does not pay an overtime rate (USAAA, Audit of Defense
Base Act Insurance, p. Enclosure 5).
50 USAAA, Audit of Defense Base Act Insurance, p. 11.

Table 5. Defense Base Act (DBA) Premiums and Claims for the
Logistics Civil Augmentation Program (LOGCAP) Contract in
Iraq and Kuwait, FY2003 to FY2005
Potential Claims as
Percentage of
Fiscal YearPremiums Paid ($)Potential Claims ($)Premiums Paid (%)
2003 4,671,775 9,882,515 211.5
2004 114,992,588 25,329,820 22.0
2005 164,657,004 37,905,929 23.0
To ta l 284,321,367 73,118,264 25.7
Notes: Potential claims do not include claims under the War Hazards Compensation Act (WHCA)
reimbursed by the federal government.
Source: U.S. Army Audit Agency, Audit of Defense Base Insurance for the Logistics Civil
Augmentation Program, Audit of Logistics Civil Augmentation Program Operations in Support of
Operation Iraqi Freedom, Audit Report A-2007-0204-ALL, September 28, 2007, p. 8.
Options for Congress
Current military operations in Iraq and Afghanistan have brought increased
congressional attention to several issues surrounding the DBA. Concerns have been
raised over the overall cost and variability of DBA premiums paid, the basis for DBA
premiums, the costs of the program to the federal government, the manner in which
contractors select their DBA providers, and the coordination of the DBA with the
WHCA. In 2006, Congress enacted language in the Defense Authorization Act that
required the DOD to review its DBA procedures and to work with the DOS and
USAID to find ways to more effectively provide DBA insurance to overseas military
contractors.51 On May 15, 2008, the House Oversight and Government Reform
Committee held a hearing on DBA issues that focused on DBA costs involved in the
LOGCAP contract as well as the possibility of the DOD adopting a single-source
model for DBA insurance similar to what is currently used by DOS, USAID, and
USACE as part of its pilot program.52
P.L. 110-417, the FY2009 NDAA, as an Outline for Possible
DBA Reform
Section 843 of the FY2009 NDAA requires DOD to adopt a department-wide
DBA insurance provision that will minimize costs, ensure that premium prices are
tied to expected claims, minimize risk to DOD, and provide for a competitive DBA
marketplace. Although this legislation does not require DOD to adopt any specific
DBA strategy, an earlier version of the bill (H.R. 5658) provision passed by the


51 P.L. 109-163.
52 Defense Base Act Insurance: Are Taxpayers Paying Too Much?: Hearing Before the
House Committee on Oversight and Government Reform, 110th Cong., (2008).

House provided an outline of several policy options that DOD was required to
consider when formulating its overall DBA strategy.53
In H.R. 5658, the House-passed version of the bill, Section 850 contains policy
options that fall into three broad categories of DBA reform that are similar to those
mentioned in reviews of the DBA performed by the GAO, the Congressional Budget
Office (CBO), the USAAA, and the House Oversight and Government Reform
Committee. The three categories of policy options are
!using a single contracted source, or a limited set of contracted
sources, for all DOD DBA contracts, similar to the model used by
DOS, USAID, and the USACE pilot program;
!using a rating system to set premiums based on past claims incurred,
similar to the experience rating systems used in many private
insurance lines; and
!having the federal government self-insure for all DBA costs similar
to what is currently done with the workers’ compensation for
injuries and death related to war hazards under the WHCA and
workers’ compensation for federal employees under the FECA
program.
Single-Source Contract for DBA Insurance
Currently, DOS and the USAID use a single-source contract to provide DBA
insurance for their contractors. Under this model, all agency contractors purchase
DBA insurance from a single source selected through a competitive bidding process.
USACE is currently testing this model for its contracts as part of a pilot program.
This process allows a single insurer to pool the risks of multiple contractors and
contracting activities with the goal of using this pooled risk to reduce the premiums
paid by all contractors.
As shown in Table 3, above, USAID, DOS, and USACE have experienced cost
savings by single-sourcing DBA insurance. Currently, premiums under the USAID
DBA contract are lower than those paid by DOS and USACE contractors as well as
those paid by KBR under the LOGCAP contract. In addition, a report issued by the
Majority Staff of the House Oversight and Government Reform Committee found
that underwriting gains were significantly higher for major DBA contracts
independently negotiated than for the single-source contracts used by DOS and
USAID.54 The Congressional Budget Office (CBO) estimates that adopting a single-


53 See Section 850(c) of H.R. 5658, the House-passed version of the bill.
54 House Committee on Oversight and Government Reform, Majority Staff, Supplemental
Information on Defense Base Act Insurance Costs, Memorandum to Committee Members,
May 15, 2008. Available on the website of the House Committee on Oversight and
Government Reform at [http://oversight.house.gov/documents/20080515102024.pdf].

source model for all DOD DBA insurance would result in savings of $33 million
dollars in the first year and a 10-year cost savings of $362 million.55
Although there are indications that adoption by DOD of a single-source model
for DBA insurance could result in cost savings, the size and complexity of the DOD
and its contracts may result in difficulties in that agency adopting the system used by
the smaller DOS and USAID. It is not known if a single insurer would be willing or
able to take on all of the DOD’s DBA business. USAAA reports that only one
insurance carrier bid to provide coverage under the LOGCAP contract, and an earlier
effort by DOD to find a single carrier for all DBA contracts in Iraq resulted in no
carriers placing bids.56 Additionally, it is not known whether contractors would
accept not being able to select their own insurance carriers to cover their employees.
USACE reports that even with a single source for all DBA insurance under its
pilot program, the agency is still required to provide administrative support and bear
administrative costs.57 The CBO concurs with this assessment and notes that
although it estimates overall cost savings if DOD were to adopt a single-source
model for DBA insurance, these cost estimates do not take into account the costs to
DOD involved in setting up and administering the system and that these costs “could
greatly diminish savings.”58
Experience Rating for DBA Insurance
In its audit of DBA insurance for the LOGCAP contract, USAAA concluded
that the premiums being paid by KBR did not reflect either the expected claims to be
paid or the risks involved in the covered activities, especially given KBR’s relatively
low accident rates. USAAA also found that LOGCAP DBA rates were subject to
large annual fluctuations and were a major component of the overall cost of the
LOGCAP contract. The use of experience ratings, in which current premiums are
based on past claim rates, could bring DBA premiums more into line with the risks
faced by DBA contractors.
Experience rating is common in the insurance industry and is a feature of many
workers’ compensation systems governed by state laws. Under an experience rating
system, a base premium can be increased if a customer has a history of claims that
indicate a greater risk to the insurer or be lowered if the claims history indicates a
reduced insurance risk. The proprietary nature of individual insurance arrangements
between contractors and carriers and that neither DOL nor any of the contracting


55 Congressional Budget Office, Budget Options, (Washington: GPO 2007), p. 35. Hereafter
cited as CBO, Budget Options.
56 USAAA, Audit of Defense Base Act Insurance, p. 6.
57 Defense Base Act Insurance: Are Taxpayers Paying Too Much?: Hearing Before the
House Committee on Oversight and Government Reform, 110th Cong., (2008), statement of
James Dalton, Chief of Engineering and Construction, U.S. Army Corps of Engineers.
58 CBO, Budget Options, p. 35.

agencies has any authority to regulate DBA claims makes it difficult assess what
factors are currently used to set current DBA premiums.59
There may be difficulties in using experience ratings to determine DBA
premiums. The fluctuations in the price of premiums charged under the LOGCAP
program may indicate difficulties in accurately estimating insurance risk in a war
zone. One such difficulty involves the determination of whether a claim should be
paid under the DBA or the WHCA. For example, USAAA reports that KBR’s
insurance broker was concerned with the probability of increased DBA claims due
to a plane crash and the current DOS insurance contract allows for higher premiums
for security contracts that involve aviation.60 However, under some circumstances
a plane crash would be covered not by the insurer under the DBA but rather by the
federal government under the WHCA. In addition, in response to USAAA’s audit
of the DBA insurance under the LOGCAP contract, the U.S. Army Sustainment
Command stated that it “may prove difficult to find insurance carriers who use
retrospective rating plans in determining DBA insurance premiums for countries
where war risk hazards have been recognized by the DOS.”61
Federal Self-Insurance
The DBA is a privatized workers’ compensation system in which individual
contractors either purchase insurance from private carriers or self-insure. However,
because the terms of many federal contracts allow the contractors to bill the federal
government for the cost of DBA insurance, DBA insurance costs are often ultimately
paid by the federal government. One option for DBA insurance reform would be to
eliminate the private nature of DBA insurance and have the federal government act
as the sole DBA insurer and pay 100% of all DBA administrative and claim costs.
Having the federal government self-insure for DBA insurance would be similar to the
way workers’ compensation insurance is handled for injuries and deaths caused by
war hazards under the WHCA and for federal employees under the FECA program.
There are several potential advantages to having the federal government self-
insure for DBA hazards. First, rather than paying insurance premiums, the federal
government would only be responsible for paying the actual cost of claims and
administration. Given that claims make up just over 25% of total costs paid for DBA
insurance under the LOGCAP contract, the federal government could potentially see
cost savings through self-insurance. In addition, issues involving premium loading
and the charging of DBA insurance premiums on non-covered components of payroll
such as hazard pay would be eliminated if the federal government self-insured.


59 In an October 2006 report, the SIGIR criticized KBR for its labeling of nearly all of the
data on its LOGCAP operations as proprietary and stated that this practice constituted an
“abuse” of the Federal Acquisition Regulation (Special Inspector General for Iraq
Reconstruction, Interim Audit Report on Inappropriate Use of Proprietary Data Markings
by the Logistics Civil Augmentation Program (LOGCAP) Contractor, SIGR-06-035, October

26, 2006.


60 USAAA, Audit of Defense Base Act Insurance, p. 7.
61 Id., p. Enclosure 6.

Second, the use of the federal government as self-insurer would eliminate the
need to distinguish between DBA and WHCA claims, because every claim would be
paid by the federal government. There is evidence that the current process, in which
the federal government identifies WHCA claims after they have been paid as DBA
claims and then reimburses insurers for claim and administrative costs, results in the
federal government paying significant amounts that do not go directly to claimants.
Over the past five years under the WHCA, the federal government has paid more in
reimbursements to insurers for administrative expenses ($7,610,260) than it has paid
in compensation to claimants ($5,207,461).
Having the federal government self-insure for DBA hazards would change the
historic private nature of the DBA program and place the program at odds with the
privatized LHWCA program. In addition, federal self-insurance for DBA claims
would go against current trends in state workers’ compensation programs. Exclusive
state funds, in which the state pays all workers’ compensation claims, are being
replaced either by state funds that compete on the open market with private carriers,
or by systems in which all workers’ compensation insurance is provided privately.



Appendix: List of Acronyms
AIG:American International Group
ALJ: Administrative Law Judge
CBO:Congressional Budget Office
CFR:Code of Federal Regulations
CPA-IG:Inspector General for the Coalition Provisional Authority
CRS:Congressional Research Service
DBA:Defense Base Act
DFEC:Division of Federal Employees’ Compensation, Department of Labor
DLHWC:Division of Longshore and Harbor Workers’ Compensation, Department
of Labor
DOD:Department of Defense
DOL:Department of Labor
DOS:Department of State
FECA:Federal Employees’ Compensation Act
GAO: Government Accountability Office
IG:Inspector General
LOGCAP:Logistics Civil Augmentation Program
LHWCA: Longshore and Harbor Workers’ Compensation Act
OIF:Operation Iraqi Freedom
OWCP:Office of Workers’ Compensation Programs, Department of Labor
SIGIR:Special Inspector General for Iraq Reconstruction
USAAA:U.S. Army Audit Agency
USACE:U.S. Army Corps of Engineers
USAID:U.S. Agency for International Development
USO: United Service Organizations
WHCA:War Hazards Compensation Act