Winning a federal government contract is a significant achievement for any business. Whether you're bidding on your first General Services Administration (GSA) Schedule contract, pursuing Department of Defense (DoD) work, or expanding into cost-reimbursable contracts, understanding insurance requirements is critical to your success.
Failing to maintain proper insurance coverage doesn't just risk losing your contract—it can result in default termination, suspension from future bidding, and significant financial liability. Yet insurance compliance remains one of the most misunderstood aspects of government contracting.
After 34 years of insuring government contractors across Virginia, Maryland, Washington DC, and throughout the Mid-Atlantic region, we've created this comprehensive guide to help you navigate Federal Acquisition Regulation (FAR) insurance requirements and maintain full compliance.
Understanding FAR Insurance Requirements: The Foundation
The Federal Acquisition Regulation (FAR) establishes the baseline insurance requirements for federal contractors. The most critical section is FAR 52.228-5, which outlines mandatory insurance coverages for most government contracts.
Core FAR Insurance Requirements
Under FAR 52.228-5, contractors must maintain:
1. Commercial General Liability (CGL) Insurance
- Minimum limits: $500,000 per occurrence
- $1,000,000 aggregate (though most contracts require higher)
- Coverage for bodily injury and property damage
- Contractual liability coverage included
2. Automobile Liability Insurance
- Minimum limits: $200,000 per person / $500,000 per occurrence for bodily injury
- $20,000 per occurrence for property damage
- Combined Single Limit (CSL) policies are typically preferred
- Must cover owned, hired, and non-owned vehicles
3. Workers' Compensation Insurance
- Statutory limits as required by state law
- Employers' liability coverage with minimum limits of $100,000 per accident, $100,000 per employee for disease, and $500,000 policy aggregate for disease
- Must cover all employees in all states where work is performed
Important Note: These are minimum requirements. Many contracts, particularly those involving higher risk activities or larger contract values, require substantially higher limits. Always review your specific contract for exact requirements.
Required Coverage Types for Government Contractors
Beyond the FAR basics, government contractors typically need additional coverages depending on their contract type, industry, and scope of work.
Professional Liability Insurance (Errors & Omissions)
Who Needs It: Contractors providing professional services, consulting, engineering, IT services, program management, or any advisory capacity.
Why It's Critical: Professional liability covers claims arising from errors, omissions, or negligent acts in your professional services. If you provide recommendations, designs, analyses, or specialized expertise to federal agencies, you need this coverage.
Typical Requirements:
- Minimum limits: $1,000,000 per claim / $2,000,000 aggregate
- Claims-made policy form (requires continuous renewal)
- Coverage must include prior acts dating back to contract start
Real-World Example: An IT consulting firm provides cybersecurity recommendations to a federal agency. A breach occurs, and the agency claims the recommendations were inadequate. Professional liability insurance covers the legal defense and potential settlement.
Cyber Liability Insurance
Who Needs It: Any contractor handling federal data, particularly those with access to Controlled Unclassified Information (CUI), personally identifiable information (PII), or protected health information (PHI).
Why It's Critical: With DFARS 252.204-7012 and CMMC requirements for defense contractors, plus FISMA compliance for civilian agencies, cyber incidents can trigger notification requirements, regulatory fines, and contract termination.
Typical Requirements:
- Minimum limits: $1,000,000 to $5,000,000 depending on data exposure
- First-party coverage for breach response, business interruption, and cyber extortion
- Third-party coverage for liability claims and regulatory defense
- Coverage for privacy violations and failure to protect sensitive data
Critical Consideration: Some federal contracts now mandate cyber insurance as a contract requirement, particularly for IT services, healthcare contractors, and any work involving sensitive data.
Crime/Fidelity Bond Coverage
Who Needs It: Contractors with cost-reimbursable contracts, time-and-materials contracts, or those handling government property, funds, or sensitive materials.
Why It's Critical: Protects the government from employee theft, fraud, or dishonest acts. DCAA (Defense Contract Audit Agency) audits often verify this coverage exists.
Typical Requirements:
- Minimum limits: Often 10-20% of contract value or $500,000, whichever is greater
- Coverage for employee dishonesty, forgery, theft, and embezzlement
- Must include coverage for handling government property
Umbrella/Excess Liability Insurance
Who Needs It: Virtually all government contractors, especially those with contracts exceeding $10 million or high-risk operations.
Why It's Critical: Umbrella policies provide additional liability limits above your primary CGL, auto, and employers' liability policies. A single severe incident can quickly exhaust standard policy limits.
Typical Requirements:
- Limits ranging from $1,000,000 to $10,000,000 or higher
- Must follow-form over underlying policies
- Should include the government as an additional insured
Additional Insured Requirements: Getting This Right
One of the most commonly overlooked FAR requirements is properly naming the United States Government as an additional insured on your liability policies.
What This Means
When the government is named as an additional insured, your insurance policy extends coverage to protect the government from claims arising out of your work. This is not optional—it's typically a contract requirement.
How to Comply
Your insurance certificates must show:
- "United States Government" or the specific agency (e.g., "Department of Defense") as additional insured
- Coverage applies to ongoing operations AND completed operations
- Additional insured status applies per the requirements of written contract or agreement
Common Mistake: Simply having the additional insured endorsement isn't enough. Your Certificate of Insurance (COI) must explicitly list the government entity and reference the contract number. Contracting Officers will reject certificates that don't meet these specifications.
Waiver of Subrogation
Most government contracts also require a waiver of subrogation in favor of the United States Government. This prevents your insurance company from suing the government to recover claim payments. Ensure your policies include blanket waivers of subrogation or specific endorsements for government contracts.
GSA Schedule Insurance Requirements
General Services Administration (GSA) Schedule contracts have specific insurance requirements that go beyond basic FAR clauses.
Standard GSA Schedule Requirements
Commercial General Liability:
- Minimum $2,000,000 per occurrence
- $2,000,000 aggregate
- Products and completed operations coverage
- United States Government as additional insured
Workers' Compensation:
- Statutory limits in all applicable states
- Employers' liability: $500,000/$500,000/$500,000
Professional Liability (for service contracts):
- Minimum $2,000,000 per claim / $2,000,000 aggregate
- Must maintain coverage for entire contract period plus tail coverage
Automobile Liability:
- Combined Single Limit of $1,000,000 per occurrence
- Covers owned, hired, and non-owned vehicles
Annual Certificate Requirements
GSA Schedule holders must submit updated certificates of insurance annually. Failure to maintain and document proper coverage can result in schedule suspension or cancellation.
Pro Tip: Set calendar reminders 60 days before your insurance renewal dates. GSA requires proof of continuous coverage, and any gaps can trigger compliance issues.
Defense Contractor Special Considerations
Department of Defense contractors face additional insurance and compliance considerations beyond standard FAR requirements.
DFARS Compliance
Defense Federal Acquisition Regulation Supplement (DFARS) clauses often mandate:
- Higher insurance limits for contracts involving hazardous operations
- Specialized coverage for handling explosives, munitions, or classified materials
- Aviation liability for contractors providing aircraft services
- Marine liability for shipbuilding and repair contracts
CMMC and Cyber Insurance
Cybersecurity Maturity Model Certification (CMMC) requirements are reshaping insurance needs for defense contractors. While CMMC itself is a cybersecurity framework, many contractors are finding that robust cyber liability insurance is becoming a practical necessity to demonstrate risk management maturity.
Emerging Trend: Prime contractors are increasingly requiring subcontractors to carry cyber liability insurance with minimum limits of $2-5 million, even when not explicitly mandated by the contract.
Classified Contract Coverage
Contractors working on classified programs may need:
- Specialized professional liability coverage that accommodates classified information restrictions
- Higher crime/fidelity bond limits
- Additional security-related coverages
Work with an insurance broker experienced in cleared contractor requirements, as standard policies may contain exclusions that conflict with classified work restrictions.
Cost-Reimbursable vs. Fixed-Price Contract Insurance
Your contract type significantly impacts how insurance costs are handled and what coverage may be required.
Cost-Reimbursable Contracts (Cost-Plus, T&M)
Insurance as an Allowable Cost: Under cost-reimbursable contracts, insurance premiums are typically allowable indirect costs. However, DCAA scrutinizes these costs carefully.
DCAA Requirements:
- Insurance must be reasonable and allocable to government contracts
- Coverage limits should be appropriate for contract risk exposure
- Premium costs must be properly documented and allocated
- Self-insurance programs require prior government approval
Higher Compliance Requirements: Cost-reimbursable contracts often require more robust insurance coverage and documentation, including crime/fidelity bonds and detailed insurance cost allocation.
Fixed-Price Contracts
Insurance as Overhead: Insurance costs are built into your pricing structure and overhead rates. You have more flexibility in coverage selection, but you still must meet minimum contract requirements.
Risk Consideration: Since you bear more financial risk in fixed-price contracts, adequate insurance limits become even more critical. An uninsured loss comes directly from your profit margin.
State-Specific Requirements for Mid-Atlantic Government Contractors
If you're operating in Virginia, Maryland, Washington DC, or surrounding states, be aware of state-specific insurance requirements that layer on top of federal mandates.
Virginia
- Workers' Compensation: Required for businesses with three or more employees (including part-time)
- Virginia Contractors: If you hold a Virginia contractor's license and perform work in Virginia, ensure your GL policy covers operations in the state
- Federal Facilities: Work at federal installations in Virginia (Pentagon, Fort Belvoir, Naval Station Norfolk, Quantico, etc.) may require additional installation-specific insurance
Maryland
- Workers' Compensation: Required for businesses with one or more employees
- Uninsured Motorist Coverage: Maryland requires uninsured/underinsured motorist coverage on commercial auto policies unless formally waived
- Fort Meade & Aberdeen Proving Ground: Contractors working at these installations should verify installation access requirements and any additional insurance mandates
Washington DC
- Workers' Compensation: Required for businesses with one or more employees
- DC Government Contracts: District of Columbia government contracts (distinct from federal contracts) may have separate insurance requirements
- Higher Risk Profile: DC's urban environment and higher cost structure often necessitate higher liability limits
Multi-State Operations
Many government contractors operate across multiple states. Critical considerations:
- Workers' compensation must cover all states where employees work (including remote employees)
- General liability and auto policies should provide nationwide coverage
- State-specific endorsements may be required for certain operations
- Professional liability policies should include coverage for work performed in all operating states
Certificate of Insurance (COI) Best Practices
Your Certificate of Insurance is the document that proves compliance to Contracting Officers. Common mistakes can delay contract awards or lead to compliance issues.
Essential COI Elements
✓ Certificate Holder: List the specific federal agency and office (e.g., "Department of Veterans Affairs, Office of Acquisition and Logistics")
✓ Description of Operations: Include contract number, solicitation number, or project name
✓ Additional Insured: Explicitly state "United States Government is included as Additional Insured per written contract requirements"
✓ Waiver of Subrogation: Note "Waiver of Subrogation in favor of United States Government where required by written contract"
✓ 30-Day Notice: Verify the certificate includes required notice of cancellation or material change language
✓ Accurate Limits: Ensure all limits meet or exceed contract requirements
✓ Policy Dates: Verify coverage is continuous and extends through contract performance period
Working with Your Insurance Broker
Government contract insurance requirements are complex. Your broker should:
- Review your contract documents and identify specific insurance requirements
- Provide certificates that meet federal formatting and content standards
- Understand FAR, DFARS, and agency-specific supplements
- Track your contract portfolio and proactively manage renewals
- Advise on appropriate coverage limits based on contract risk profile
Red Flag: If your broker isn't familiar with government contract insurance requirements or can't produce properly formatted certificates, find a broker with federal contracting expertise.
Maintaining Compliance: Annual Review Checklist
Government contractors should conduct an annual insurance review, or more frequently when:
✓ Bidding on new contracts with higher limits or different coverage requirements
✓ Adding new service offerings or expanding scope of work
✓ Increasing contract volume or total contract value
✓ Expanding into new states or geographic regions
✓ Hiring additional employees or subcontractors
✓ Acquiring new equipment, vehicles, or facilities
✓ Approaching insurance renewal dates
✓ Changes in FAR or agency-specific requirements
Documentation and Record-Keeping
Maintain organized records of:
- All insurance policies and endorsements
- Certificates of insurance issued for each contract
- Correspondence with Contracting Officers regarding insurance
- Premium payment records (for DCAA-audited contractors)
- Claim history and loss runs
- Insurance cost allocation documentation
DCAA Audit Tip: If you're subject to DCAA audits, ensure your insurance costs are properly categorized, allocated to the correct cost pools, and supported by adequate documentation.
Common Government Contractor Insurance Mistakes to Avoid
Mistake #1: Inadequate Limits
Many contractors maintain only minimum FAR limits, not realizing their specific contract requires higher coverage. Review each contract's insurance requirements in the Special Contract Requirements section—don't assume standard minimums apply.
Mistake #2: Coverage Gaps During Contract Performance
Your insurance policy renews annually, but your contract may span multiple years. Ensure continuous coverage with no gaps. Even a one-day lapse can constitute breach of contract.
Mistake #3: Failing to Update Certificates for New Contracts
Each contract should have a properly prepared certificate naming the specific agency and contract. Using generic certificates or failing to update certificate holders creates compliance vulnerabilities.
Mistake #4: Excluding Government Work
Some insurance policies contain exclusions for government work or government property. Ensure your policies explicitly include coverage for federal contract work.
Mistake #5: Inadequate Cyber Coverage
With increasing focus on cybersecurity in government contracting, many contractors carry outdated or insufficient cyber liability coverage. Review your cyber policy to ensure it addresses modern threats, regulatory requirements, and contract mandates.
Mistake #6: No Professional Liability for Service Contracts
Many service contractors assume general liability is sufficient. If you provide advice, recommendations, designs, or professional services of any kind, professional liability insurance is essential.
Mistake #7: Subcontractor Insurance Oversight
Prime contractors are responsible for ensuring subcontractors maintain adequate insurance. Implement a robust subcontractor insurance verification process, including certificate collection, coverage review, and periodic renewal tracking.
The Cost of Non-Compliance
Failing to maintain proper insurance coverage or documentation can result in:
- Contract Award Delays: Inadequate insurance can prevent contract award even after winning a bid
- Default Termination: Loss of insurance coverage during performance constitutes material breach
- Financial Liability: Uninsured losses come directly from your business assets and profits
- Suspension/Debarment: Serious or repeated violations can lead to suspension from federal contracting
- Lost Bidding Opportunities: Past compliance issues can affect your responsibility determination on future contracts
- Reputation Damage: Non-compliance creates negative past performance records that impact future competitiveness
The cost of proper insurance is a modest investment compared to the devastating consequences of inadequate coverage or non-compliance.
Building Your Government Contractor Insurance Program
A comprehensive government contractor insurance program should include:
Core Coverages:
- Commercial General Liability ($2M-$5M typical)
- Commercial Auto Liability ($1M CSL minimum)
- Workers' Compensation (statutory + adequate employers' liability limits)
- Umbrella/Excess Liability ($2M-$10M depending on contract portfolio)
Contract-Specific Coverages: 5. Professional Liability/E&O ($1M-$5M depending on services) 6. Cyber Liability ($2M-$5M for contractors handling sensitive data) 7. Crime/Fidelity Bond ($500K-$2M for cost-reimbursable contracts)
Specialized Coverages (as needed): 8. Pollution Liability (environmental contractors) 9. Aviation Liability (aircraft services) 10. Marine Liability (shipbuilding/repair) 11. Employment Practices Liability (growing workforce) 12. Directors & Officers Liability (larger contractors)
Take Action: Ensure Full Compliance Before Your Next Bid
Government contracting offers tremendous growth opportunities, but insurance compliance is non-negotiable. Whether you're pursuing your first federal contract or managing a diverse portfolio of GSA Schedules and agency contracts, having the right insurance program is critical to your success.
Don't let insurance requirements derail your contract award or put your business at risk during performance.
Get a comprehensive government contractor insurance review today.
Contact Trans-Atlantic Commercial Insurance at 703-674-0299 or visit www.TCIIns.net to speak with an experienced government contractor insurance specialist.
With 34 years of experience insuring government contractors throughout Virginia, Maryland, Washington DC, Delaware, Pennsylvania, North Carolina, South Carolina, Florida, and Georgia, we understand FAR requirements, agency-specific mandates, and the unique challenges you face. We'll review your contract portfolio, identify gaps, ensure full compliance, and provide coverage tailored to your specific needs.
Your mission is to deliver exceptional work to federal agencies. Our mission is to protect your business while you do it.
Schedule your complimentary government contractor insurance audit today: www.TCIIns.net or call 703-674-0299.
Trans-Atlantic Commercial Insurance, LLC specializes in insurance programs for government contractors, including GSA Schedule holders, defense contractors, professional services firms, and construction contractors working on federal projects. We provide expert guidance on FAR compliance, DFARS requirements, and agency-specific insurance mandates throughout the Mid-Atlantic region and beyond.