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Friday, May 16, 2008
Overseas Contractor Insurance Companies Bilking Taxpayers
Citing inflated profit margins, a recent report by the House Oversight and Government Reform Committee criticized providers of federally mandated insurance to the Pentagon of sticking taxpayers with exorbitant bills.
The Defense Base Act (DBA) requires that all contractors working for the federal government overseas purchase workers compensation insurance for its employees. The cost of the insurance is then passed on to the government. But unlike other federal agencies, the Pentagon has the authority to negotiate its own contracts.
At a hearing yesterday, before the House panel, GAO's John K. Needham testified that not only does the Pentagon pay higher insurance rates, but that it doesn't keep good enough records to figure out to obtain lower rates:
GAO previously reported that eight DOD prime contractors paid from $10 to $21 per $100 of salary cost, a rate that was significantly higher than the rates paid by State and USAID contractors—$2 to $5 per $100 of salary cost—through the agencies' respective single-insurer programs.
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DOD continues to lack reliable aggregate data on the total cost of DBA insurance. Based on GAO's 2005 report, Congress directed DOD to identify methods to collect data on DBA insurance costs. While State, USAID, and Army Corps can obtain aggregate DBA cost data for their respective single insurer programs, DOD reported that it has not collected this data departmentwide. As GAO has previously reported, agencies can analyze financial data to leverage their buying power, reduce costs, and better manage suppliers of goods and services.
And usual-suspect Iraq contractor KBR is also featured in the report.
The largest private contractor in Iraq, KBR, paid its workers' compensation insurer, AIG, $284 million in premiums through 2005 under its contract to provide logistical support to the troops. In addition to receiving reimbursement for these expenses, KBR will receive an additional payment of $2.8 million to $8.4 million in profits for incurring these expenses. The insurer, AIG, will payout $73 million in claims and incur around $114 million in expenses, earning almost $100 million in profits.
Posted by Craig Jennings
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