For government contractors, insurance is too often an afterthought, a box to be checked. Given the complexity of government contracts, and the risk that may be hidden in the fine print, that can be a costly oversight.
Executives at Sandy Spring Insurance, an affiliate of Sandy Spring Bank, encourage GovCons to take a deeper look. They offer a range of consultative services that ensure their clients address risk appropriately.
“A federal contract may contain exposure for foreign operations, travel, extortion, kidnap,” said Todd Ellis, president of Sandy Spring Insurance. “Cargo can be an issue for contract work in foreign countries, and there may even be some uninsurable risks in there. Having a partner that can help you identify these is critical for the government contractor.”
It takes a high degree of expertise to ferret out the risk potentially buried in a government work order. In one recent example, Sandy Spring Insurance worked with a GovCon that had been offered a job involving a major international airport. The contract specified liquidated damages of $10,000 an hour should the work delay the start of flight operations at 5 a.m.
“Suppose there was an accident, a crane going into a building,” said Bruce Talbot, vice president and sales manager for commercial insurance and surety. “They were going to be responsible for damages at a rate of $10,000 an hour. How long can that go on before you’re out of business? We advised the contractor not to take the contract if less onerous terms could not be negotiated. There was just too much risk there.”
Subcontractors in particular may find themselves on the hook, if they don’t give sufficient scrutiny to the terms of their agreements.
“They might get a contract from a big multinational contractor that exposes them to possible liabilities that extend beyond what is provided by their insurance coverage, or requests limits that are cost prohibitive,” Talbot said.
With deep expertise in supporting large and small contractors, Sandy Spring Insurance has the depth of expertise to identify which exposures are insurable, along with those that are beyond the scope of insurance coverage.
Sometimes, it’s just a matter of spelling out the limitations on liability.
“As a company, we take a holistic approach to helping clients,” Ellis said. “If you think about a bond, the financial information that the loan officer is collecting from the government contractor is very similar to what we would need to secure the bond.”
By working with a single financial institution, “a government contractor can have one meeting, one point of contact to secure their insurance program, their line of credit, and a bond if need be — as opposed to visiting three separate professionals and trying to get them to coordinate,” Ellis added.
Sandy Spring Insurance can come in early to do a complete review of a proposed contract, to determine if clients have any gaps in coverage that need to be addressed, or if they are potentially overinsured in some areas.
“We can see where the requirements of the contract go beyond the GovCon’s current insurance program, and we can make the client aware of where we think that they should make adjustments,” Ellis said.
It’s helpful to have those outside eyes on the insurance piece of the puzzle: Insurance requires a depth of expertise, and it’s an area easy to overlook.
“It happens in every industry, not just in government contracting,” Ellis said. “Insurance is something that feels like a nuisance to a business owner. They will have programs in place for 5, 6, 7 years, but the world keeps changing, the risks change. You need to adjust to that.”
Too often, business owners will fixate on the cost of coverage, rather than delving into the scope of the protection on offer. In fact, every new piece of business can come with new risk.
“Our job is to help build a program so that when you need the insurance, when there is a claim, that insurance program responds appropriately,” Ellis said.
With almost 10 years’ experience at the helm of Sandy Spring Insurance, Ellis said he gets deep personal satisfaction out of being able to help his contractor clients sidestep the hidden pitfalls associated with business liability.
“I get really excited about unravelling these contracts, enabling our clients to make educated, well-informed decisions,” he said. “We want to make sure they have an insurance program that responds in the appropriate way when called upon. When we are able to do that, it’s the best feeling in the world.”