Self-insurance
Contractors must obtain administrative contracting officer approval for self-insurance programs meeting specific thresholds, provide detailed documentation, and maintain compliance to avoid withdrawal of approval.
Overview
FAR 28.308 outlines the requirements and approval process for contractors seeking to use self-insurance programs for risks associated with government contracts. It establishes thresholds for when contractors must submit detailed self-insurance program information to the administrative contracting officer (ACO) and obtain approval. The regulation specifies the documentation required, including program descriptions, financial statements, loss history, and reserve formulas. It also sets criteria for approval, such as the contractor’s financial stability, risk dispersion, and compliance with laws. The section prohibits self-insurance for catastrophic risks and for costs related to correcting the contractor’s own defects. Ongoing compliance is required, including approval for major program changes and the possibility of withdrawal of approval if requirements are not met.
Key Rules
- Submission and Approval Thresholds
- Contractors must submit self-insurance program details for ACO approval if 50% or more of self-insurance costs are allocable to negotiated government contracts and annual costs at a segment are expected to be $200,000 or more.
- Required Documentation
- Submissions must include a comprehensive program description, financials, loss history, reserve formulas, and disclosure of captive/reinsurance agreements.
- Approval Criteria
- The ACO evaluates financial soundness, asset dispersion, loss history, risk type, and legal compliance before approving self-insurance.
- Restrictions
- Self-insurance for catastrophic risks or for correcting contractor defects is not permitted.
- Ongoing Oversight
- Major changes require ACO approval, and approval can be withdrawn if requirements are not maintained.
Responsibilities
- Contracting Officers: Review, approve, and monitor contractor self-insurance programs; withdraw approval if requirements are not met.
- Contractors: Submit required documentation, obtain approval, maintain compliance, and report major changes.
- Agencies: Ensure programs are in the Government’s interest and do not approve prohibited self-insurance types.
Practical Implications
- Ensures government contracts are not exposed to undue risk from inadequate contractor self-insurance.
- Contractors must be prepared for rigorous documentation and ongoing oversight.
- Common pitfalls include incomplete submissions, failure to report changes, or seeking approval for prohibited risks.