FAR 52.250-1—Indemnification Under Public Law85-804.
Plain-English Summary
FAR 52.250-1 implements the Government’s indemnification authority under Public Law 85-804 and Executive Order 10789 for contracts involving unusually hazardous or nuclear risks. The clause defines who counts as the contractor’s principal officials, identifies the types of losses the Government may cover, and limits coverage to claims or losses arising from risks specifically defined in the contract as unusually hazardous or nuclear and not otherwise compensated by insurance or other financial protection. It also addresses exclusions for willful misconduct or lack of good faith by principal officials, the ability to extend indemnification to subcontractors with prior written approval, and the Government’s authority to direct or participate in settlement or defense of claims. The clause further explains survival of rights and obligations after contract completion, the requirement for an agency head determination that any payment is just and reasonable, and the Government’s ability to pay claimants directly. In cost-reimbursement contracts, Alternate I adds special rules on insurance cost allowability and clarifies that the Government’s indemnification obligations are not limited by release language or by Limitation of Cost/Funds clauses. In practice, this clause is a high-risk allocation tool used only when the Government has specifically authorized it, and it creates important notice, documentation, and coordination duties for contractors and contracting officers when hazardous or nuclear incidents occur.
Key Rules
Principal officials defined
The clause limits certain misconduct-based exclusions to acts of the contractor’s principal officials, meaning senior people who direct all or substantially all of the business, a major plant or location, or a separate major industrial operation. This definition matters because the misconduct of these officials can affect whether the contractor is entitled to indemnification.
Government indemnifies specified losses
Subject to the clause’s limits, the Government may indemnify claims by third persons, including employees, for death, personal injury, or property loss; contractor property loss; and Government property loss. Litigation and settlement expenses are included for third-party claims, but profit is excluded from property-loss coverage.
Coverage only for defined hazardous risks
Indemnification applies only when the claim, loss, or damage arises from a risk the contract defines as unusually hazardous or nuclear and is not otherwise covered by insurance or other financial protection. Losses within the contractor’s insurance deductible are not covered, and reducing insurance after approval does not increase the Government’s liability.
Misconduct can bar coverage
If the loss is caused by willful misconduct or lack of good faith by any principal official, the contractor is not indemnified for Government claims against the contractor (except subrogation claims) or for loss or damage to the contractor’s property. This is a significant exception that can eliminate coverage for certain losses tied to senior management conduct.
Subcontractor indemnity requires approval
With the contracting officer’s prior written approval, the contractor may indemnify subcontractors for unusually hazardous or nuclear risks, and the same basic rights, notice requirements, proof requirements, and settlement/defense provisions must apply. The contracting officer may also approve lower-tier subcontractor indemnification, and the Government may indemnify the contractor for liability incurred under approved subcontract provisions.
Claims process and Government control
The contractor must promptly notify the contracting officer of claims or losses that may involve indemnification, provide all relevant papers, furnish proof as required, and follow Government directions on settlement or defense. The Government may direct, control, or assist in settling or defending any claim or action that may involve indemnification.
Payment requires agency-head determination
The Government cannot pay under the clause unless the agency head determines the amount is just and reasonable. Payment may be made to the contractor, subcontractors, or directly to third parties to whom the contractor or subcontractors are liable.
Alternate I cost-reimbursement rules
For cost-reimbursement contracts, insurance costs for unusually hazardous or nuclear risks are unallowable unless the contracting officer required or approved the insurance. Alternate I also states that the Government’s obligations are not affected by the contract’s release of claims language or by Limitation of Cost or Limitation of Funds clauses.
Responsibilities
Contracting Officer
Ensure the clause is inserted only when prescribed; identify and document the contract risks defined as unusually hazardous or nuclear; obtain prior written approval before authorizing subcontractor indemnification; require or approve insurance only when appropriate in cost-reimbursement contracts; and coordinate with the agency and Government counsel on claims, settlement, and defense matters.
Agency Head
Make the required determination that any payment under the clause is just and reasonable before the Government pays a claim. This approval is a condition precedent to payment under the indemnification authority.
Contractor
Maintain required insurance or other financial protection, except where the Government has required or approved otherwise; promptly notify the contracting officer of any potentially covered claim or loss; provide all relevant documents and proof; follow Government directions on settlement or defense; and ensure any subcontract indemnity provisions match the clause and have prior approval.
Subcontractor
When covered by an approved subcontract indemnity provision, comply with the notice, evidence, and settlement/defense procedures established in the subcontract and coordinated with the Government through the prime contractor.
Government
Indemnify covered losses within the clause’s limits, may direct or assist in settlement or defense, and may pay the contractor, subcontractor, or third-party claimant directly when authorized and after the required just-and-reasonable determination.
Practical Implications
This clause is not a general insurance substitute; it only applies to specifically approved unusually hazardous or nuclear risks, so contractors should not assume broad coverage for all project losses.
Prompt notice is critical. Delayed reporting can complicate coverage, settlement authority, and proof of loss, and may jeopardize the Government’s ability to manage the claim.
Contractors should track insurance deductibles and policy changes carefully, because losses within deductibles are excluded and later reductions in insurance do not expand Government liability.
Before passing indemnity down to subcontractors, the prime contractor must get prior written approval and mirror the clause’s procedural protections; otherwise the subcontract indemnity may not be covered by the Government.
In cost-reimbursement work, contractors should verify whether insurance costs for hazardous risks were required or approved, because unapproved insurance may be unallowable and the Government’s indemnity obligations are not capped by Limitation of Cost/Funds language.
Official Regulatory Text
As prescribed in 50.104-4 , insert the following clause: Indemnification Under Public Law 85-804 (Apr 1984) (a) "Contractor’s principal officials," as used in this clause, means directors, officers, managers, superintendents, or other representatives supervising or directing- (1) All or substantially all of the Contractor’s business; (2) All or substantially all of the Contractor’s operations at any one plant or separate location in which this contract is being performed; or (3) A separate and complete major industrial operation in connection with the performance of this contract. (b) Under Public Law85-804 ( 50 U.S.C. 1431 - 1435 ) and Executive Order 10789, as amended, and regardless of any other provisions of this contract, the Government shall, subject to the limitations contained in the other paragraphs of this clause, indemnify the Contractor against- (1) Claims (including reasonable expenses of litigation or settlement) by third persons (including employees of the Contractor) for death; personal injury; or loss of, damage to, or loss of use of property; (2) Loss of, damage to, or loss of use of Contractor property, excluding loss of profit; and (3) Loss of, damage to, or loss of use of Government property, excluding loss of profit. (c) This indemnification applies only to the extent that the claim, loss, or damage (1) arises out of or results from a risk defined in this contract as unusually hazardous or nuclear and (2)is not compensated for by insurance or otherwise. Any such claim, loss, or damage, to the extent that it is within the deductible amounts of the Contractor’s insurance, is not covered under this clause. If insurance coverage or other financial protection in effect on the date the approving official authorizes use of this clause is reduced, the Government’s liability under this clause shall not increase as a result. (d) When the claim, loss, or damage is caused by willful misconduct or lack of good faith on the part of any of the Contractor’s principal officials, the Contractor shall not be indemnified for- (1) Government claims against the Contractor (other than those arising through subrogation); or (2) Loss or damage affecting the Contractor’s property. (e) With the Contracting Officer’s prior written approval, the Contractor may, in any subcontract under this contract, indemnify the subcontractor against any risk defined in this contract as unusually hazardous or nuclear. This indemnification shall provide, between the Contractor and the subcontractor, the same rights and duties, and the same provisions for notice, furnishing of evidence or proof, and Government settlement or defense of claims as this clause provides. The Contracting Officer may also approve indemnification of subcontractors at any lower tier, under the same terms and conditions. The Government shall indemnify the Contractor against liability to subcontractors incurred under subcontract provisions approved by the Contracting Officer. (f) The rights and obligations of the parties under this clause shall survive this contract’s termination, expiration, or completion. The Government shall make no payment under this clause unless the agency head determines that the amount is just and reasonable. The Government may pay the Contractor or subcontractors, or may directly pay parties to whom the Contractor or subcontractors may be liable. (g) The Contractor shall- (1) Promptly notify the Contracting Officer of any claim or action against, or any loss by, the Contractor or any subcontractors that may be reasonably be expected to involve indemnification under this clause; (2) Immediately furnish to the Government copies of all pertinent papers the Contractor receives; (3) Furnish evidence or proof of any claim, loss, or damage covered by this clause in the manner and form the Government requires; and (4) Comply with the Government’s directions and execute any authorizations required in connection with settlement or defense of claims or actions. (h) The Government may direct, control, or assist in settling or defending any claim or action that may involve indemnification under this clause. (End of clause) Alternate I (Apr 1984) . In cost-reimbursement contracts, add the following paragraph (i) to the basic clause: (i) The cost of insurance (including self-insurance programs) covering a risk defined in this contract as unusually hazardous or nuclear shall not be reimbursed except to the extent that the Contracting Officer has required or approved this insurance. The Government’s obligations under this clause are- (1) Excepted from the release required under this contract’s clause relating to allowable cost; and (2) Not affected by this contract’s Limitation of Cost or Limitation of Funds clause.