FAR 50.104-1—Standards for use.
Plain-English Summary
FAR 50.104-1 explains when and how an agency may use residual powers under Public Law 85-804, subject to the limitations in FAR 50.102-3 and the general policies in FAR 50.101-2. It specifically addresses the decision to include the indemnification clause at FAR 52.250-1, Indemnification Under Public Law 85-804, in a contract or subcontract, and the authority of the agency head to require the contractor to provide and maintain financial protection. The section also identifies the factors the agency head must consider when deciding whether to approve indemnification and when setting the type and amount of financial protection, including self-insurance, other proof of financial responsibility, workers’ compensation insurance, and the availability, cost, and terms of private insurance. In practice, this provision gives agencies a controlled way to shift extraordinary risk in exceptional circumstances, while requiring a documented judgment about whether the contractor can absorb or insure against that risk. The agency head’s approval and financial-protection determination are final, which makes the decision highly discretionary and limits further internal challenge under this section.
Key Rules
Use only within limits
Residual powers may be used only subject to the limitations in FAR 50.102-3 and only when consistent with the policies in FAR 50.101-2. The authority is exceptional, not routine, and must be justified as necessary and appropriate in light of all circumstances.
Indemnification clause may be added
An agency head may authorize inclusion of FAR 52.250-1, Indemnification Under Public Law 85-804, in a contract or subcontract. This is the mechanism that allows the government to indemnify the contractor for certain extraordinary risks.
Financial protection may be required
When approving indemnification, the agency head may require the indemnified contractor to obtain and maintain financial protection in the type and amount the agency head determines appropriate. The requirement is discretionary but may be imposed as a condition of indemnification.
Specific factors must be considered
In deciding whether to approve indemnification and what financial protection is needed, the agency head must consider self-insurance, other proof of financial responsibility, workers’ compensation insurance, and the availability, cost, and terms of private insurance. These factors ensure the decision reflects the contractor’s actual risk-bearing capacity and market insurance conditions.
Decision is final
The approval of indemnification and the determination of financial protection are final under this section. That means the agency head’s decision is the controlling agency action for purposes of this provision.
Responsibilities
Agency Head
Determine whether use of residual powers and the indemnification clause is necessary and appropriate, subject to FAR 50.102-3 and FAR 50.101-2. Decide whether to approve indemnification, select the type and amount of financial protection if required, and consider the listed risk and insurance factors before making a final determination.
Contracting Officer / Acquisition Staff
Prepare the request, document the circumstances supporting use of indemnification, and ensure the contract or subcontract includes FAR 52.250-1 only when properly authorized. If financial protection is required, administer the requirement and verify the contractor’s compliance with the approved terms.
Indemnified Contractor
Provide and maintain the financial protection required by the agency head, using the approved type and amount. The contractor must be prepared to show self-insurance, insurance coverage, or other proof of financial responsibility as applicable.
Subcontractor
If the indemnification clause is flowed down or otherwise included in a subcontract, comply with the same indemnification and financial-protection requirements established for the covered work.
Agency
Ensure the decision-making process follows the governing limitations and policies for Public Law 85-804, and treat the agency head’s approval and financial-protection determination as final for purposes of this section.
Practical Implications
This section is used only for exceptional risk situations, so contractors should not expect indemnification to be available in ordinary procurements. Agencies need a strong factual record showing why the protection is necessary and appropriate.
The financial-protection requirement can be as important as the indemnification itself. Contractors should evaluate whether they can satisfy the requirement through insurance, self-insurance, or other evidence of financial responsibility before agreeing to the contract.
The agency head must consider insurance market realities, including availability, cost, and terms of private insurance. If commercial insurance is unavailable or prohibitively expensive, that may support a different protection structure or amount.
A common pitfall is treating indemnification as a substitute for normal risk management. The clause does not eliminate the need to assess exposure, document the basis for approval, and tailor financial protection to the actual risk.
Because the approval and financial-protection determination are final, the practical focus is on getting the submission right the first time: complete facts, clear risk analysis, and a defensible recommendation are critical.
Official Regulatory Text
Subject to the limitations in 50.102-3 , residual powers may be used in accordance with the policies in 50.101-2 when necessary and appropriate, all circumstances considered. In authorizing the inclusion of the clause at 52.250-1 , Indemnification Under Public Law 85-804, in a contract or subcontract, an agency head may require the indemnified contractor to provide and maintain financial protection of the type and amount determined appropriate. In deciding whether to approve use of the indemnification clause, and in determining the type and amount of financial protection the indemnified contractor is to provide and maintain, an agency head shall consider such factors as self-insurance, other proof of financial responsibility, workers’ compensation insurance, and the availability, cost, and terms of private insurance. The approval and determination shall be final.