Under the pilot program, he said, the Corps believes insurance costs==which are a factor in construction contract prices==will be reduced and save the government money.

The Corps explained in a contract request document it provided to insurers that the pilot will test the concept that a broad pooling of the risks, rather than "looking at a particular situation, can make a difference in the rates."

Insurers' negative outlook and predictions that dire consequences will result from the program is reflected in one unidentified carrier's statement listed as a "question" that the Corps included in a contract request for proposal document.

The carrier forecasted: "A single insurance provider for USACE (U.S. Army Corps of Engineers) DBA coverage will greatly increase the risk of poor service to USACE contractor workers and employers.

"The successful bidder will be under intense pressure to provide 'lowball' initial insurance rates. To keep its subsequent expenses under the agreed price, there will be strong economic incentive to limit service to workers who have claims and to employers.

"Denial of valid claims and late payments to workers for their injuries will inevitably result in increased workload for the Department of Labor. More disputes over claims will translate into more hearings and appeals, and there will be increased unknown exposure of the U.S. government for future liabilities."

How, the insurer wanted to know, would the Corps "respond to this situation it has created."

The Corps responded that the request for a single provider contract "does not change any provision of the Defense Base Act or implementing regulations governing the handling of claims. The expectation is that all requirements will be met. Before award of any contract, the contracting officer shall affirmatively prove responsibility and price reasonableness. Additionally, under this program, any proposed insurance rates will be analyzed for price reasonableness."

The Corps document advises that it is looking for insurers to provide "innovative procedures" to deal with claims administration in a war zone and reduce costs through value-added claims management techniques and the best assured protection to the claimants.

One insurer asked about the handling of brokerage fees in the wake of the New York Attorney General's investigation that found a conflict of interest in carriers' payment of contingent payments to intermediaries. The government, in response, said it will be up to the insurance contract supplier to make sure that the government gets "best value" for its money.

The primary suppliers of DBA insurance are AIG, ACE Ltd., CNA and Chubb Corp. According to a report in the Los Angeles Times, only CNA has expressed interest in bidding to be a sole-source provider.

According to the Corps contract advice, under the program: "It will be mandatory that all contracts awarded by the U.S. Army Corps of Engineers for work outside CONUS [the continental United States] contain a provision that all successful contractors and their subsequent subcontractors acquire their DBA insurance needs from the single centrally-managed insurance carrier during the contract duration, unless a waiver has been obtained from the U.S. Department of Labor."