§ 3864. Assumption of uninsurable risk on certain contracts

• (a) The Secretary of Defense shall ensure that a contractor is not required to assume the risk of loss for work in process under a covered contract if, due to the classified nature of the performance of such contractor under such covered contract—
  • (1) such contractor is unable to obtain insurance for such risk of loss from a commercial provider; or
  • (2) a commercial provider is unable to process a claim of such contractor for loss of work in process under such covered contract.
• (b) Subsection (a) shall not apply with respect to a loss of work in process under a covered contract to the extent that such loss—
  • (1) is the result of willful misconduct or lack of good faith on the part of the managerial personnel of the contractor, including with respect to the oversight of subcontractors by the contractor; or
  • (2) is the result of workmanship error by the contractor.
• (c) In this section:
  • (1) The term “classified contract” means a contract the performance of which requires a contractor performing under such contract, or an employee of such contractor, to have access to classified information.
  • (2) The term “covered contract” means a classified, fixed-price type contract for the acquisition of a product entered into by the Department of Defense after the enactment of this Act.
  • (3) The term “work in process” means an item at any stage of production or manufacture at any time from the initiation of contract performance until delivery to and acceptance by the Government.
  • (4) The term “workmanship error” means damage to work in process that is a result of an incorrectly performed skill-based task, operation, or action that was originally planned or intended.