Independent contractors, Iraq, and insurance: more light on the matter

January 17th, 2007 by Julie Ferguson

In his recent article, Contractors in Iraq are a taxpayers’ nightmare, Joseph Neff of The (Raleigh) News Observer presents the most detailed accounting of workers compensation as it relates to Iraqi contractors as I’ve managed to find. We’ve discussed the issue of Iraq contractors and their workers compensation coverage before, but Neff’s investigative journalism kicks things up to the next level.
Everyone knows that private contractors are being employed in Iraq – any who were ignorant of that fact certainly became aware when the grisly details of the deaths of four contractors in Fallujah became public. Private contractors aren’t anything new. The military has relied on contractors to provide support and logistics services in prior wars. But in Iraq, the difference is that contractors are being employed in unprecedented numbers. According to Neff, there are currently 100,000 contractors in Iraq, a number that many might find surprising. As a point of reference, in the 1991 Gulf War, 9,200 contractors were employed to support approximately 1.2 million ground troops.
Because the contracting firms are private, public reckonings can be hard to come by. I would doubt that most Americans are aware that at least 646 private contractors have been killed in Iraq – I certainly wasn’t, despite occasionally searching for this information. Details about fatalities, injuries, rates, and costs have been scarce. Neff’s article explains why – essentially, there is no oversight.

“It is impossible to say how much the insurance costs. No agency regulates the premiums, and no one tracks the overall costs.”

Going to work every day in war zone is pretty risky business and insurers would be loath to provide insurance in such dicey circumstances. The federal government recognized this, and since WW II, has provided a federal backstop in the Defense Based Act (DBA). All military contractors are insured under the provisions of this act, but the insurance is supplied by private insurance firms. The insurer is on the hook for everyday work-related injuries and illnesses, but when an injury or death is war-related, tax dollars pick up the tab.
As Neff notes, when the DBA was enacted, nobody ever contemplated that the number of private contractors might rival the number of deployed forces. That’s one problem. Another problem is this pesky business of oversight.

“These insurance policies differ from conventional workers’ comp in one major way: Domestic workers’ comp is heavily regulated and analyzed, but the contractors’ insurance is not. The U.S. Department of Labor monitors the number of claims and resolves disputes over benefits, but it has no authority over pricing or availability.”

“We are not an insurance commission operation,” said Shelby Hallmark, director of the department’s Office of Workers Compensation. “We are not in the business of controlling or even monitoring prices.”

“The Government Accountability Office, Congress’ watchdog agency, examined contractors’ insurance in 2005 and could not calculate its cost to taxpayers. The auditors couldn’t estimate what impact the insurance costs had on reconstruction activities in Iraq. The GAO found that Department of Defense contractors were being charged premiums between $10 and $21 for every $100 of salary.”

That means taxpayers were paying up to $21,000 a year to insure a worker with an annual salary of $100,000, which is not unusual pay for a private contractor.”

So this is mandated insurance, but there is no regulatory body keeping an eye on things? OK, do this math: $21,000 x 100,000 contractors. That would certainly seem substantial enough for someone somewhere to be paying attention, particularly when tax dollars figure into the equation.
Neff points to at least one official in the Army Corps of Engineers who is paying attention and who has cut some rates by as much as half through a competitive bid process.

“The Corps is only a part of the Defense Department contracting budget, Greenhouse said. Huge savings could be gained in the Army’s huge logistical supply contract, she said.

Houston-based Halliburton holds that contract, which is managed by the U.S. Army Material Command. Since 2003, the Army says, it has spent at least $284 million on contractors’ insurance under the Halliburton contract.

The insurance industry opposes putting the insurance contracts up for bid.”