FAR 28.308—Self-insurance.
Plain-English Summary
FAR 28.308 addresses when and how a contractor may use self-insurance in connection with Government contracts, and when the Government may approve, condition, or reject such arrangements. It covers the threshold for mandatory submission and approval of a proposed self-insurance program, the required contents of the submission, approval standards for self-insurance generally and for workers’ compensation/employer’s liability, the need to seek approval for major program changes, the financial and operational factors the contracting officer must evaluate, the prohibition on approving self-insurance for catastrophic risks, and the prohibition on using self-insurance to cover the contractor’s own defects in materials or workmanship. In practice, this section is about protecting the Government from bearing unreasonable insurance-related costs or losses while still allowing contractors flexibility to manage ordinary business risks when doing so is cost-effective and in the Government’s interest. It also ties directly to cost allowability under FAR 31.205-19, so approval of a program is not just an administrative formality; it affects whether self-insurance costs can be treated as allowable contract costs. Contractors need to document the program thoroughly, demonstrate financial capacity, and keep the Government informed of material changes. Contracting officers need to evaluate both the economics and the risk profile before approving or continuing approval.
Key Rules
Submission threshold and approval
If 50 percent or more of the self-insurance costs at a contractor segment are expected to be allocable to negotiated Government contracts and the annual self-insurance costs are expected to be $200,000 or more, the contractor must submit the program in writing to the administrative contracting officer and obtain approval before relying on it.
Required program documentation
The submission must be made by segment and include detailed information such as the program description, board authorization, insurance manual if available, financial statements, feasibility studies, loss history, reserve methodology, claims procedures, projected average loss method, and all captive insurance and reinsurance arrangements.
Government-interest approval standard
Self-insurance, including the deductible portion of purchased insurance, may be approved only when review shows the program is in the Government’s interest. Approval is not automatic; it depends on the overall cost, risk, and reasonableness of the arrangement.
Workers’ compensation limits
Agencies may not approve self-insurance for workers’ compensation in a jurisdiction where workers’ compensation does not fully cover employer liability to employees unless the contractor also has approved self-insurance for the uncovered employer’s liability or shows the combined cost will not exceed commercial coverage for both risks.
Major changes need approval
After approval, the contractor must submit any major proposed changes to the administrative contracting officer for approval. Approval may be withdrawn if the program no longer complies with the subpart or FAR 31.205-19, or if the facts that supported approval have materially changed.
Financial capacity required
To qualify, the contractor must show it can absorb the potential losses. The contracting officer considers financial strength, available credit, geographic spread of assets, prior loss experience, the type and size of the risk, and compliance with Federal and State laws.
No approval for catastrophic risks
Agencies may not approve self-insurance for catastrophic risks. If Government work creates catastrophic exposure, the Government may instead provide indemnification or recognize a share of purchased insurance premiums only to the extent authorized by law.
No self-insurance for own defects
Self-insurance programs intended to cover the cost of correcting the contractor’s own defects in materials or workmanship are not approvable. Normal rework estimates and warranty costs are excluded from the definition of self-insurance for this purpose.
Responsibilities
Contractor
Determine whether the self-insurance threshold is met, prepare and submit a complete program package by segment, obtain approval before implementation where required, and seek approval for major program changes. The contractor must also demonstrate financial ability to absorb losses and must not use self-insurance to cover its own defects or catastrophic risks.
Administrative Contracting Officer
Review the proposed self-insurance program, evaluate whether it is in the Government’s interest, approve or disapprove the program, and review and approve major changes after initial approval. The ACO may also withdraw approval if the program no longer meets regulatory requirements or if the underlying approval basis has changed materially.
Agency
Apply the prohibition on approving self-insurance for catastrophic risks and, where authorized by law, consider indemnification or recognition of an appropriate share of purchased insurance premiums when Government contracts create catastrophic exposure.
Contracting Officer
Assess the contractor’s financial condition, risk profile, loss history, legal compliance, and other factors relevant to whether the contractor can sustain potential losses and whether the program remains approvable under the FAR and cost principles.
Practical Implications
Contractors cannot treat self-insurance as a casual internal accounting choice when Government costs are significant; once the threshold is met, approval and documentation are mandatory.
A weak reserve methodology, incomplete loss data, or undisclosed captive/reinsurance arrangements can delay approval or lead to disallowance of costs later.
Approval is segment-specific, so large contractors with multiple business units must analyze each segment separately rather than assuming one corporate program covers all work.
Workers’ compensation is a common trap: in jurisdictions where it does not fully cover employer liability, the contractor must address the gap or prove the combined cost is no higher than commercial insurance.
Even after approval, material changes in coverage, claims handling, reserves, or risk profile can trigger re-review or withdrawal of approval, so contractors should maintain ongoing communication with the ACO.
Self-insurance cannot be used to shift the cost of fixing the contractor’s own defective work to the Government, and normal rework or warranty costs should not be mislabeled as self-insurance.
Official Regulatory Text
(a) When it is anticipated that 50 percent or more of the self-insurance costs to be incurred at a segment of a contractor’s business will be allocable to negotiated Government contracts, and the self-insurance costs at the segment for the contractor’s fiscal year are expected to be $200,000 or more, the contractor shall submit, in writing, information on its proposed self-insurance program to the administrative contracting officer and obtain that official’s approval of the program. The submission shall be by segment or segments of the contractor’s business to which the program applies and shall include- (1) A complete description of the program, including any resolution of the board of directors authorizing and adopting coverage, including types of risks, limits of coverage, assignments of safety and loss control, and legal service responsibilities; (2) If available, the corporate insurance manual and organization chart detailing fiscal responsibilities for insurance; (3) The terms regarding insurance coverage for any Government property; (4) The contractor’s latest financial statements; (5) Any self-insurance feasibility studies or insurance market surveys reporting comparative alternatives; (6) Loss history, premiums history, and industry ratios; (7) A formula for establishing reserves, including percentage variations between losses paid and losses reserved; (8) Claims administration policy, practices, and procedures; (9) The method of calculating the projected average loss; and (10) A disclosure of all captive insurance company and reinsurance agreements, including methods of computing cost. (b) Programs of self-insurance covering a contractor’s insurable risks, including the deductible portion of purchased insurance, may be approved when examination of a program indicates that its application is in the Government’s interest. Agencies shall not approve a program of self-insurance for workers’ compensation in a jurisdiction where workers’ compensation does not completely cover the employer’s liability to employees, unless the contractor- (1) Maintains an approved program of self-insurance for any employer’s liability not so covered; or (2) Shows that the combined cost to the Government of self-insurance for workers’ compensation and commercial insurance for employer’s liability will not exceed the cost of covering both kinds of risk by commercial insurance. (c) Once the administrative contracting officer has approved a program, the contractor must submit to that official for approval any major proposed changes to the program. Any program approval may be withdrawn if a contracting officer finds that either- (1) Any part of a program does not comply with the requirements of this subpart and/or the criteria at 31.205-19 ; or (2) Conditions or situations existing at the time of approval that were a basis for original approval of the program have changed to the extent that a program change is necessary. (d) To qualify for a self-insurance program, a contractor must demonstrate ability to sustain the potential losses involved. In making the determination, the contracting officer shall consider the following factors: (1) The soundness of the contractor’s financial condition, including available lines of credit. (2) The geographic dispersion of assets, so that the potential of a single loss depleting all the assets is unlikely. (3) The history of previous losses, including frequency of occurrence and the financial impact of each loss. (4) The type and magnitude of risk, such as minor coverage for the deductible portion of purchased insurance or major coverage for hazardous risks. (5) The contractor’s compliance with Federal and State laws and regulations. (e) Agencies shall not approve a program of self-insurance for catastrophic risks ( e.g., see 50.104-3 , Special procedures for unusually hazardous or nuclear risks). Should performance of Government contracts create the risk of catastrophic losses, the Government may, to the extent authorized by law, agree to indemnify the contractor or recognize an appropriate share of premiums for purchased insurance, or both. (f) Self-insurance programs to protect a contractor against the costs of correcting its own defects in materials or workmanship shall not be approved. For these purposes, normal rework estimates and warranty costs will not be considered self-insurance.