WASHINGTON--A report prepared for members of Congress suggests that the federal government could achieve significant savings by taking over the workers compensation risks for contractor employees working overseas.

Prepared by the Congressional Research Service, the report notes that under the Defense Base Act mandates federal contractors must provide workers' compensation coverage to employees operating overseas.

Specifically, the report compares the experiences of the State Department, the U.S. Agency for International Development, and the dept. of Defense's various subdivisions regarding the costs of coverage.

The State Department and USAID, the report notes, have adopted a single source system for coverage in which companies compete for the contract to cover all of their contractor employees.

The Defense Dept. has instead opted to let its contractors and subcontractors handle the issue themselves, although some units, such as the Army Corps of Engineers, have begun experimenting with a single source model.

Generally, the premiums paid by the Defense Department have been substantially higher, and the experiences of the Corps of Engineers program has shown that some savings could be realized. However, the report notes that such a system may not translate well to the complexity of the Defense Department overall.

"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," the CRS says in the report.

Among the more obvious challenges, CRS noted, is that no single insurer may be willing to take on a risk as large and complex as that of the DOD. Additionally, contractors may object to not being able to choose their own insurer, the report noted, and the savings could be sharply reduced due to a requirement that the agency provide support and bear administrative costs.

However, the report notes that by self insuring, the federal government could resolve some of the complexities unique to covering employees overseas and in dangerous areas.

"There are several potential advantages to having the federal government self insure for DBA hazards," the report notes.

Among those is the fact that the government would be responsible not for the costs of premiums, which run higher than actual claims costs because, among other reasons, premiums are based on total payroll costs including hazard pay and overtime while benefits are based on base salaries.

Self-insuring, the report notes, would allow the government to simply avoid such distinctions.

Additionally, the CRS argued such a move would eliminate the complexity of determining which claims fell under the DBA's umbrella.

The report noted the concerns of one contractor's insurance broker of increased DBA claims due to a plane crash, but stated that such claims may instead be paid directly by the government under the War Hazards Compensation Act.

"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," the CRS said.

Special Reports /

Report Suggests U.S. Takeover Of Comp At Defense Bases

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