Homeland Security contractors may get indemnification

The White House is expected to circulate a draft modifying a longstanding executive order under which the Defense secretary and agency heads may choose to indemnify contractors for unusually hazardous products. The modifications to Public Law 85-804 would extend the indemnification to homeland security providers.

The technology industry considered the November congressional passage of the bill to create a Homeland Security Department a win, but they failed to get indemnification included in that bill. They did get protection from liability for their products to the level of commercially available insurance, but there is no agreement that the government would step in above that level. Some companies may be deterred from participating in government contracts without that type of deal, industry sources said.

"Industry is gratified that its concerns have been addressed in the legislation," said David Colton, vice president at the Information Technology Association of America, which represents technology and defense contractors. "We look forward to working with the administration in their consideration of the executive order. These actions together will ensure the ability of the defense and technology sectors to actively participate in homeland security."

Industry sources said indemnification would give additional confidence to company management to support their company's participation in homeland security procurement opportunities.

Sources said White House counsel and top officials at the White House Office of Management and Budget, including Director Mitchell Daniels and Federal Procurement Policy Administrator Angela Styles, have been involved in the drafting.

Calls to White House offices were not returned.

Melissa Wojciak, staff director for the House Government Reform Technology and Procurement Policy Subcommittee, said last month the subcommittee would review the issue.

The new executive order initially was drafted by October, according to industry sources, but was shelved until completion of the contentious homeland security bill. That bill includes a provision that limits the liability exposure for contractors whose product or service has been certified as "high-risk" by the Homeland Security secretary. Lawsuits would be limited to a "reasonable" amount of insurance, essentially the amount a company can obtain commercially and still be profitable, an industry source said.

Indemnification would commit the federal government to cover additional damages resulting from terrorist attack or other incident involving the homeland security products. Whether economic damages, such as lost business due to the disruption, would be covered, appears to be still under debate.

The tech industry would like to see the executive order cover the Homeland Security Department, Postal Service, architect of the Capitol and Justice Department. Justice agencies such as the FBI are not currently covered.

Separately, a coalition of defense and technology providers is convening a working group of lawyers to study the homeland security bill's hastily written product liability provision for possible routine technical amendments, a source said. There is concern that reopening the bill to fix minor errors in one section could open the door to others seeking changes to other sections.

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