Ground and Flight Risk

My understanding of the reason for the Ground and Flight Risk clause is that insurance is generally unavailable or only available at exorbitant cost with high deductibles. Therefore the US Government assumes the loss risk and does that only as long as the contractor complies with a detailed regulation on flight and aircraft safety procedures. Some 30 years ago a contractor, on an admittedly risky flight operations contract I was the Contracting Officer on, showed me an insurance quote that was almost double the annual cost of the contract itself. The Federal Government needed to assume the risk of operation to make the contract viable. Will insurance even be available to your contractor? Will your FMS customer be willing to pay the cost of that insurance if he won’t pay for any deductible costs incurred? It is theoretically possible to get insurance with no deductable but that will be very expensive even if available. You could put a notice of cost disallowance for deductibles in the contract, but your contractor will have to cover that in some way. I am not familiar with bailment agreements in this context, but I would assume this refers to a situation where the Federal Government has title to the property under a separate agreement. Someone has to have title to the property and assume the risk of loss and there will be a cost to do that. If your FMS customer is not willing to assume the risk of loss or pay the cost (including deductibles) of insuring against that loss, it may not be possible to execute a contract.

Larry, thank you for your reply. I think that, in general, the US self insures because it is considered cheaper than to pay insurance premiums incorporated into the contract price, but this is not necessarily based on the inherently high risk of a particular contract. For example, the US self insures under the standard Government Property clause regardless of the nature of the property or the purpose of the contract. In this case I am told the FMS country has a law by which it cannot accept the risk of loss to property under the custody and control of a contractor. The FMS country is willing to pay the cost of insurance, the prime contractor has arranged for that insurance, and the prime is willing to accept liability for the deductible (even though the contract is cost reimbursable). I can help draft the special contract clauses, but I was looking for help in making sure my clauses did not contradict the FAR and DFARS on any issues.