Essential Takeaways
- Government contractors are typically required to carry multiple types of insurance to bid on jobs, unlike in other industries, where some insurance coverage is recommended but not mandatory.
- General liability, workers’ compensation, E&O, cyber liability, and DBA are the most common insurance requirements for government contract work.
- Common compliance mistakes include failing to update or track coverage, choosing the wrong policy limits, and failing to account for flow-down.
Government work can be complex, with rules that vary significantly based on who you are partnering with and what the project scope entails. Some projects will even send individuals abroad, further complicating the task. Throughout all of this, teams must make sure they meet federal contract insurance requirements, managing contractor risk to avoid liability and financial repercussions when (not if) things go wrong.
However, simply acquiring the first insurance policy you see can leave you exposed to significant risk. Understanding how to stay compliant with government contractor insurance standards means knowing the details of your policy and, ideally, having a blend of protections customized to you. Here are some tips for choosing contractor insurance with compliance in mind.
The Most Common Insurances Required for Compliance
Unlike many other industries, where insurance coverage is useful but flexible, government contractor work can be more stringent. Insurance may be a requirement before bids even begin. The most common types of insurance that government contractors often need include:
General Liability
A general liability policy can cover bodily injury, property damage, and, in some cases, advertising injury if a contractor harms a third party. Many contracts cannot begin until proof of a general liability policy is provided. At least $1M per occurrence in coverage is recommended for most scenarios, though this may vary based on project type, scope, location, and other factors.
Workers’ Compensation
Workers’ compensation insurance addresses the financial risks associated with employee injury. Should a worker be injured or even killed while on the job, this policy can help to address medical bills, funeral costs, and compensation to the family for their loss. Workers’ compensation coverage is almost always mandatory.
Errors & Omissions (E&O)
Also known as professional liability insurance, E&O is important for any team, especially service-based contractors (e.g., consulting). It addresses errors, negligence, and the harm caused by contractor mistakes. For example, if the contractor provides guidance that turns out to be in opposition to industry mandates and the client acts on it, the client may be able to bring a legal case against the contractor for the mistake and any resulting damages.
Cyber Liability
Increasingly, government contractors are finding that cyber liability insurance is invaluable. As technology continues to develop, sensitive data is under more threat than ever. Contractors can protect themselves from the financial fallout of data breaches and ransomware using cyber liability coverage.
Defense Base Act (DBA)
If contractors travel overseas to perform their work, some types of domestic insurance will no longer cover them. This is the purpose of DBA coverage: it serves as a workers’ compensation policy outside the US (e.g., on a military base).
Common Compliance Missteps in Government Contractor Work
Even if government contractors secure all the right insurance policies for their situation, they may still end up in financial trouble. Selecting insurance policies is more intensive than simply picking one policy of each type. The details matter. Insurance agencies often see contractors making mistakes, such as:
Leaving Coverage Alone
Contract scopes and values can change frequently in government work, but many contractors do not update their insurance policies accordingly. Commit to quarterly coverage reviews to see if your insurance is still protecting you where it should.
Incorrectly Choosing Policy Limits
Every project is different, and the project limits that have worked before may be insufficient for a new one. Analyze potential insurance gaps during the bidding process so you can come in prepared.
Ignoring Flow-Down Requirements
If you use subcontractors, understand that insurance may not cover them. Your subcontractors must often carry equivalent coverage, so require and verify COIs to protect yourself.
Mismanaging Documentation
If you track your insurance documentation manually, you may miss lapses in coverage or other important details. Use a centralized system to track compliance.
Stay Compliant With Insurance Standards With Help From Industry Professionals
As you consider your insurance options as a government contractor, it is essential to remain agile. Adjust your protections and limits for each project, and get help from industry professionals to create a mix of insurance coverages that address the real risks you may encounter now and in the future. Contact CI Solutions to build a partnership with insurance professionals you can trust with years of experience in insuring government contractors.