Public Contract Law Journal

The Defense Base Act: War Risk Syndrome

by C. Jason Bromley
U. S. Armed Forces

U. S. Armed Forces

Major C. Jason Bromley ( serves as a Reserve Officer in the U.S. Army Judge Advocate General’s Corps and attorney for the U.S. Army Intelligence & Security Command. This paper was submitted in partial satisfaction of the requirements for the degree of Master of Laws in Government Procurement at The George Washington Uni-versity Law School. The views expressed in this paper are solely those of the author and do not reflect the official policy or position of the United States Army, Department of Defense, or U.S. Government. The author wishes to thank Mike Cameron, Dean Jessica Tillipman, and Director Karen Da Ponte Thornton for their comments and guidance in writing this Ar-ticle. He also wishes to thank his wife, Monica Bromley, for her unwavering support and un-yielding encouragement.

I.  Introduction

The federal government left billions of potential savings on the table due to lack of oversight of wartime contracting in Iraq and Afghanistan.1 As Congress’s power of the purse prompts the Department of Defense (DoD) to wring out billions in reductions to its headquarters, administrative and support staff, military retirement plans, and the total number of service members, they not only miss the boat on a larger cost savings but also weaken the future of our force.2

In fiscal year 2015, the DoD funded over $277 billion in contract awards.3 The spending on DoD contracts became so high that when juxtaposed with the gross domestic product (GDP) of developed countries, such as Finland, Chile, or Pakistan, the DoD’s contract awards for fiscal year 2015 were actually higher.4 In fact, DoD contracts awarded during fiscal year 2015 valued more than the GDP of 154 countries around the world.5

Over the last five years, the DoD consistently obligated a majority of its contract dollars for service acquisitions.6 The DoD is the federal government’s largest purchaser of contractor provided services.7 These enormous buckets of money represent an opportunity for Congress and the DoD to find potential cost reductions.8 Reforms for better oversight of claim reimbursements under the Defense Base Act (DBA) and War Hazards Compensation Act (WHCA) could yield dramatic efficiencies without negatively impacting the Warfighter.9 All DoD service contracts in Iraq or Afghanistan require contractors to obtain DBA insurance coverage.10 Under the terms of the contract, the contractor invoices its DBA premiums to the government for full reimbursement.11 The DBA works similarly to workers’ compensation insurance and covers a contractor employee’s health injuries sustained while performing in Iraq or Afghanistan.12 The WHCA supplements an Iraq or Afghanistan DBA claim if an employee’s injury or death occurs as a result of a “war-risk hazard.”13 Pursuant to the WHCA, an employer will be reimbursed by the Department of Labor (DoL) for the full amount of the original DBA claim.14 

Lack of existing oversight of the interplay between the DBA and WHCA represents an opportunity for significant cost reform.15 The DoD’s wartime contracts pay magnified DBA insurance premiums to the insurance carriers that charge high rates based upon the war risks associated with Iraq and Afghanistan.16 But the DBA insurance carriers are eligible under the WHCA to receive full reimbursement for each war related injury or death resultant from war-risk hazards in Iraq or Afghanistan; hence, they should have no need to raise premiums for this risk.17 As a result, DBA insurance carriers disproportionately inflate premiums.18 Not only do DBA insurance carriers receive large payouts through inflated premiums, ultimately paid by the DoD, they may also seek reimbursement for the covered war-risk hazards through the DoL.19 I have labeled this predicament: the DBA “war risk syndrome.” This war risk syndrome can also benefit a contractor by increasing its general and administrative expenses, which can then be marked up for a profit. Thus, DBA insurance carriers, brokers, and contractors can reap an inequitable profit. In this Article, I propose that the federal government has an opportunity to immediately achieve DoD cost savings and mitigate the DBA war risk syndrome through its contracting officers and better oversight of WHCA payments.

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