Wednesday, April 20, 2011

Government Property - Risk of Loss

DoD is proposing to extend its self-insurance policy for loss of Government property to more types of contracts. Currently, the responsibility and liability for Government property furnished to contractors to perform their contracts rests with the Government for
  • cost-reimbursable,
  • time and materials,
  • labor-hour, and
  • fixed price contracts award on the basis of submission of cost or pricing data.
The new proposal, if adopted, will add "fixed-price contracts awarded on a basis other than submission of certified cost or pricing data" to that list. This method and type of contracting is becoming more prevalent as it is now officially "preferred" over contracts awarded based on cost or pricing datas.

The impact of this change for small businesses is likely to be beneficial. DoD has approximately three thousand contractors where some form of Government property has been furnished in connection with performing contracts. More than 80 percent of the property (in terms of costs) has been furnished to large businesses. Large businesses however are often in a financial position that enables them to select a high insurance deductible in order to garner lower premiums. Losses under the deductible amount are effectively self-insured for potential property loss.

Small companies may not have the financial capacity or capability to select high insurance deductibles and become self-insured up to high thresholds. The probable and natural consequences of lower deductibles is higher premiums. The effect of higher premiums might negatively impact a small businesses ability to compete in full and open competition.

This new provision should provide some relief for the small entities concerning costs to acquire insurance against risk of loss.

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