Approved Contractor Insurance Program Initiative

1. Approved Contractor Insurance Program Initiative Chris Hilder Director ASDEFCON and Contracting Initiatives

2. Approved Contractor Insurance Program (ACIP) Initiative ACIP Management Team: • led by Director ASDEFCON & Contracting Initiatives (ACI) • comprising nominated officers from the Directorate of ACI (in Procurement & Contracting Support Branch (PCSB)) and DMO Legal • PCSB and DMO Legal are part of Contracting and Legal Division in DMO Commercial Group

3. Approved Contractor Insurance Program (ACIP) Initiative Objectives: – improve practice and reduce inefficiencies in formulating, negotiating and ensuring compliance with contractual insurance requirements What is it? – centralised review and approval (pre-qualification) of participating Defence companies’ global/group and local insurance programs – pre-qualification is recognised by the granting of ACIP status (subject to conditions) – companies granted ACIP status are deemed compliant with insurance requirements in individual contracts (subject to stand-alone project-specific insurances not covered under the company’s ACIP)

4. Approved Contractor Insurance Program (ACIP) Initiative Current Approach: – individual procurement teams on a contract-by-contract basis are responsible for reviewing contractor insurances for compliance with the contract insurance requirements and for ensuring ongoing compliance – key problems: • lack of DMO insurance expertise • confidentiality of company insurance programs • inconsistency across DMO • duplication

5. Approved Contractor Insurance Program (ACIP) Initiative Benefits: – streamline management of contract insurance issues (reduce transactions costs to both DMO and Industry): • reduce tender data and contract data deliverable requirements • reduce tender evaluation, contract negotiation and contract management effort – continue to improve risk management within DMO, particularly in respect of insurable risks – provide DMO with greater transparency and understanding of participating Defence companies’ insurance programs

6. Approved Contractor Insurance Program (ACIP) Initiative Benefits Continued: – enhance the relationship between DMO and participating Defence companies’ global risk and insurance managers – ACIP Management Team will perform centrally some functions previously decentralised – standardisation

7. Approved Contractor Insurance Program (ACIP) Initiative Application: – top dozen or so Defence companies with which DMO regularly contracts – voluntary Rationale: – the review process has resource costs for both DMO and participating companies, so diminishing returns in applying this Initiative below a certain scale

8. Approved Contractor Insurance Program (ACIP) Initiative – applies to Complex (some exceptions) and Strategic procurements Procurement Lifecycle: – Develop Request Documentation: • new ASDEFCON insurance clauses (long form and short form), ASDEFCON Insurance Handbook and ACIP Management Team to provide guidance on contract insurance – Tender Evaluation: • tenderers with ACIP status - no TDR response (except for any stand-alone project-specific insurances not covered by their ACIP)

9. Approved Contractor Insurance Program (ACIP) Initiative Procurement Lifecycle: – Contract Negotiations: • procurement team requests ACIP Compliance Assurance Report only if: • liability, transit or contract works limit of indemnity =>$25m; or • aviation or marine policy required • procurement team reviews report and resolves any identified issues – Contract Management: • procurement team relies on ACIP Compliance Assurance Report, or ACIP status if above thresholds not met

10. Approved Contractor Insurance Program (ACIP) Initiative Parameters– what does not change for Defence procurement teams: – procurement team’s responsibility to properly manage risks by identifying appropriate contractual insurance requirements based on a liability risk assessment (LRA) and value for money – procurement team’s responsibility to manage any stand-alone project specific insurances for risks not covered by the company’s ACIP

11. Approved Contractor Insurance Program (ACIP) Initiative Parameters– what does not change for companies with ACIP status: – company’s responsibility to properly manage risks and their insurance program, and to discuss appropriate contractual insurance requirements with the procurement team (performing their own LRA if required)

12. Approved Contractor Insurance Program (ACIP) Initiative Parameters– what the initiative does not do: – not an exercise in using information obtained from the reviews to obtain more insurance cover than is required • it is the LRA that drives contract insurance requirements (subject to value for money) – not an exercise in benchmarking one company’s ACIP against another’s – not an exercise in DMO advising companies about their own insurance programs

13. Approved Contractor Insurance Program (ACIP) Initiative Overview of Pre-Qualification Review Process: – inspection of company’s insurance policies – interview of company’s key risk and insurance personnel – initial review typically 2 days at company’s head office

14. Approved Contractor Insurance Program (ACIP) Initiative Outcomes of Pre-Qualification Review Process: – sufficient insight into company’s insurance (including reinsurance and captive) arrangements to satisfy due diligence requirements and to understand company’s insurance arrangements – confidence in the adequacy of company’s insurance arrangements – confidential report capturing the above (will provide to company for comment) – if OK, granting of ACIP status and listing on a register – ACIP status subject to conditions and further periodic reviews

15. Approved Contractor Insurance Program (ACIP) Initiative Implementation Issues: – commercial sensitivity of the information – ACIP Management Team will keep the confidential report closely held, it will not be made available to procurement teams (ie it will be kept at ‘arms length’ from procurement teams and their advisers) – the above does create some communication protocols, eg providing ACIP Compliance Assurance Reports only against what has been tendered or agreed in contract negotiations – we will assist procurement teams with insurance issues based on general insurance expertise and knowledge of our advisers

16. Approved Contractor Insurance Program (ACIP) Initiative Current Status: – four Defence companies have been granted ACIP status: • BAE Systems, Boeing, Raytheon and Saab – finalisation of pre-qualification review report of one further company in progress – webpage available with links to all supporting documentation

17. QUESTIONS?