(Editor’s Note. In our consulting practice, we frequently encounter disputes on whether certain insurance costs are allowable, whether they are allocable to a specific contract and whether they should be charged direct. Also, recent government initiatives have increasingly transferred risk (e.g. environmental, etc.) from the government to industry making proper pricing of risk without unduly increasing bid prices a critical concern in winning awards. We have relied on a "White Paper" prepared for a client by a consultant colleague of ours named Keith Davis, one of our favorite texts "Accounting for Government Contracts" by Lane Anderson and our own experience.)

Insurance costs can arise either through purchased policies or self-insurance programs. Coverage by insurance includes that required by a contract or what is necessary for the general conduct of the business. FAR 31.205-19 covers general allowability of both purchased and self-insurance, CAS 416, Accounting for Insurance Costs focuses on self- insurance and FAR Part 28 covers the type of insurance coverage contractors need to obtain. In addition, certain types of insurance (e.g. fringe benefits such as health, death, post-retirement) are more relevant to FAR 31.205-6, Personal compensation and CAS 415, deferred compensation.

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