AIC Draft SOW.pdf

DRAFT

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PART I – SECTION C

STATEMENT OF WORK

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TABLE OF CONTENT

C.1 Introduction……………………………………………………..…………………..…….3 C.2 Description of Services……………………………………………………….…..……3 C.3 Scope of Work..……………………………………………………………….………….4 C.4 Objectives…………………………………………………………………………………..5 C.5 Requirements…………………………………………………………….……….…..….5 C.6 Task Outline………………………………………………………………..…….………11

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C.1 Introduction

This Statement of Work (SOW) describes the Federal Aviation Administration’s (FAA) requirements for contractor support services for an Aviation Insurance Claims Manager and Insurance Advisor to the FAA Office of Security and Hazardous Materials.

Chapter 443 of title 49, U.S. Code, authorizes the Secretary of Transportation to provide insurance and reinsurance against loss or damage arising out of any risk from the operation of American aircraft or foreign-flag aircraft. FAA seeks experienced aviation insurance professionals to assist in claims settlement and to advise the FAA on commercial aviation insurance matters.

C.2 Description of Services

C.2.1 Background

The Secretary has delegated the insurance program authority under chapter 443 to the FAA (49

C.F.R 1.47(b)). The program is managed by FAA’s Aviation Insurance Program Office (AEO-200) which is part of the Office of Security and Hazardous Materials. AEO-200 is responsible for providing hull, comprehensive, and liability insurance under chapter 443. This insurance is issued when commercial insurance becomes unavailable under reasonable terms, and the

President determines that continuation of air service is in the interest of air commerce, national security or to carry out the foreign policy of the United States Government (most recently: 76

F.R. 61247, Oct. 3, 2011).

The program has two components: (1) premium war risk insurance, provided to airlines for their commercial operations; and (2) non-premium war risk insurance, provided to air operators engaged in contract operations for Federal agencies. The FAA currently provides non-premium war risk insurance only to U.S. air operators (under Presidential direction; see 76 F.R. 61247, above), although chapter 443 also permits insuring foreign operators.

Chapter 443 authorizes both all-risk and war risk insurance. However, FAA currently issues only war-risk insurance. FAA’s insurance policy defines the covered war risk perils: loss, damage, death, or injury due to hostile acts such as war, invasion, insurrection, rebellion, hijacking, and other related perils. In the event of a war risk event to an FAA-insured aircraft, the FAA is responsible for settling the claims. This would include claims for hull and other property loss or damage, as well as liability for injuries to, or death of, passengers and claims by third parties.

As a possible provider of premium war risk insurance to the entire U.S. commercial aviation industry, the FAA has an immense responsibility to the airlines, and it is essential that FAA obtain an experienced claims management service to assist in the settlement of such high risk, complex events.

Prior to September 11, 2001, war risk insurance was provided to the airlines by the commercial insurance industry at no minimal cost to their all-risk premium. In the aftermath of the September 11 terrorist attacks, commercial insurance was available for only $50 million for 3 party liability, and was offered only at extremely high premiums. The airline industry appealed to the Department of Transportation for assistance, and in September 2001, at the direction of Congress (which, among other things, expanded the chapter 443 program to cover the formerly excluded domestic flights), the FAA began issuing premium war risk insurance to the U.S.

C-4 aviation industry for their commercial flights. The premium war risk insurance program was sunset in December 2014 and is inactive today.

In February 2003, in preparation for further military engagement in the Middle East, the Department of Defense (DOD) activated the Civil Reserve Air Fleet (CRAF), and requested the FAA provide non-premium war risk insurance for CRAF flights. (This non-premium insurance is conditioned on DOD’s agreement to indemnify FAA against any insured losses, as provided in chapter 443.) FAA complied, and although CRAF was deactivated in June 2003, the FAA continues to provide non-premium war risk insurance to CRAF participants, and to other U.S. air operators under contract with DOD. The non-premium war risk insurance program is active today. The FAA provides this insurance at no cost to DOD’s contractors, because DOD has agreed to indemnify FAA against any losses (see 49 U.S.C. § 44305(b), 10 U.S.C. § 9514).

The FAA provides premium war risk insurance to 64 U.S. air operators for their commercial flights anywhere in the world. The FAA provides non-premium war risk insurance to 34 U.S. air operators who are under contract to DOD. (in practice, this is a subset of the carriers who are insured under the premium program). Currently the FAA provides only war risk insurance, so any loss would probably occur in a crisis situation, however, chapter 443 does not limit FAA’s insurance authority to covering only war risks.

By law (49 U.S.C. § 44307) the Aviation Insurance Revolving Fund is the exclusive source for paying claims and other administrative expenses arising under chapter 443 insurance program.

If a loss is payable under the premium insurance component, the Fund balance would be reduced. If the Fund is depleted, the FAA may request that Congress appropriate funds from the general fund of the U.S. Treasury; by law, this is effectively an interest-bearing loan to the Revolving Fund. If there is a loss to a DOD contractor’s aircraft that is insured under the non-premium component, the claim would be paid from the Revolving Fund, but DOD would reimburse the Fund, as noted above.

It is customary in the aviation insurance industry for an insurer to hire a Third Party Administrator to resolve claims. In this document, in the context of responding to a loss event the term “Claims Manager” is used to refer to the Contractor, who will perform functions similar to those of a Third Party Administrator.

C.3 Scope of Work

The purpose of this contract is to obtain the services, of an experienced aviation insurance claims settlement professional and insurance advisor. Certain services are required under the base contract, and other services may be specifically tasked. FAA may also issue task order for tasks that are in addition to those described below, but are within the scope of the contract.

Contractor shall act as Claims Manager and Insurance Advisor, as described below.

The U.S. Government (including FAA) will not indemnify or otherwise hold harmless the Contractor against any claims, losses, costs or liabilities that may arise out of the performance, defective performance, or non-performance of any services or obligations by the Contractor or any of the Contractor’s subcontractors, or any of the subcontractors of those subcontractors, regardless of the tier, under this contract.

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The Contractor, as Claims Manager, shall —

C.3.1. Be available twenty-four hours per day, seven days per week, to assist FAA in responding immediately to a loss event.

C.3.2. Contact AEO-200 immediately upon learning of any loss event that might involve an aircraft that is covered by chapter 443 war risk insurance, to determine whether in fact, the loss is thus covered. (For this purpose, the Claims Manager shall use the Emergency Contact List described in section C.5.10.3 below).

C.3.3. Coordinate all aspects of claims settlement when there is a loss to an FAA- insured aircraft, including handling claims for hull loss or damage, and claims for passenger and crew death or injury, as well as claims arising under comprehensive coverage and third party liability.

However, by law, (49 U.S.C. § 44308(c)(1)) FAA, not the contractor, must provide final approval for any settlement.

C.3.4. Ensure that the FAA is prepared to settle claims by providing written documentation of claims settlement procedures in advance of a loss.

C.3.5. Conduct annual analyses of the commercial aviation war risk insurance market and, as tasked, report on industry developments that may affect the FAA Aviation Insurance Program.

C.3.6. Advise on other aviation insurance and related airline industry issues as tasked.

C.4 Objectives

1. Preparedness: Ensure that the FAA has a Claims Manager under contract who has the ability, experience and affiliations with other service providers to supply all the services normally required of a commercial insurer for their insured to settle claims under hull comprehensive, and liability coverage anywhere in the world.

2. Consultation: Provide aviation insurance market expertise.

3. Services: Assist FAA in settling claims (when tasked).

The FAA plans to award a one-year base contract with 4 one-year renewal options. Some tasks are required and repeated each year if the contract if renewed. These annual requirements are indicated next to the task. All other tasks will be issued at FAA request.

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C.5 Requirements

The following requirements are stated in general terms and will be further defined in specific Task Orders to be issued under the contract.

C.5.1 Task Area 1. Contractor Prepared for Claims Settlement. Required all years.

C.5.1.1. The contractor must have the ability and/or experience to handle claims under hull, comprehensive, and liability coverage, including passenger and third-party injury, death, damage, or loss. Hull damage or loss may require settlement within less than 30 days, to meet the requirements of the insured air carriers; however, liability claims may take months or years to resolve. The Claims Manager must be prepared to assist the FAA through the entire settlement process, beginning with initial notification, through investigation, evaluation, and recommendations, and finally, resolution. As litigation is always possible, claims and records of settlement efforts must be maintained, consistent with industry practice. Contractor would be required to cooperate with any U.S. Government litigation efforts.

C.5.1.2. The contractor must have global reach, as a loss could occur anywhere in the world.

The contractor must be available at all times (24 hours a day, 7 days a week) to respond immediately in the event of a loss. If tasked by the FAA pursuant to Task Area 8 (Claims Settlement), the contractor must deploy claims team members to the loss site.

C.5.1.3. The Claims Manager shall be familiar with the requirements of the Aviation Disaster Family Assistance Act of 1966, as amended (49 U.S.C. 1136, 41113). The Claims Manager must be capable of providing sufficient staff to respond immediately and adequately to a large scale loss event, for the purpose of rapidly evaluating the claims that an air operator involved in the event may file under the policy issued to such operator under chapter 443 of title 49, U.S. Code, for costs that the operator may incur under such Act.

C.5.1.4. Service network. The FAA Aviation Insurance Program requires a Claims Manager and Insurance Advisor to support the FAA in all the Tasks described in this Statement of Work. The Claims Manager and Insurance Advisor may utilize a network of subcontractors to assist in this activity, and will be responsible for obtaining, coordinating, and paying for the services of the subcontractors that are needed to perform the Tasks. Subcontracts may be necessary to accomplish some or all of the Tasks, particularly those that involve urgent response. Subcontracts for an urgent response may provide, but are not limited to;

engineering, environmental mitigation, investigation, legal, loss adjusting, medical, salvage, search and rescue, security and other entities needed to settle a claim. To the extent practicable, the Contractor will provide FAA with a list of preferred subcontractors for all the Tasks described in the Statement of Work, to include those that would be utilized to fulfill the basic Task requirements as well as those needed in an emergency situation. The list should state for each proposed subcontractor: 1) contact information, 2) area of expertise, 3) the geographic area in which they operate, and 4) the nature of the offeror’s agreement with the subcontractor.

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C.5.1.5. Conflicts of Interest. As the FAA may elect to enter into a 50-50 preliminary cost sharing agreement with an all-risk insurer, contractor must, when acting on behalf of the FAA, avoid, if possible, contracting with a service provider who may have a conflict of interest associated with that all-risk insurer.

C.5.2. Task 1A – Annual Meeting With FAA. Required all years.

Review status of FAA Insurance Program, including claims components, and assist in improving capabilities. This meeting is separate from the Table Top Exercises described in Task 4.

C.5.3. Task 1B – Phone Consultation. Required all years.

Provide annual phone and email consultation on any subject matter relevant to contract. This does not include contract administration.

C.5.4. Task Area 2 - Commercial Aviation Insurance Market

C.5.4.1. FAA provides insurance to the airline industry when the Secretary of Transportation decides that insurance cannot be obtained on reasonable terms from an insurance carrier, and the President approves (49 USC § 44302). FAA must stay informed about the insurance markets in order to understand how changes in the market could influence decisions that the FAA makes regarding the Aviation Insurance Program. Therefore, FAA requires that the contractor has expert knowledge of the commercial aviation insurance industry and has the ability to provide FAA with analyses of the aviation insurance market for both all risk and war risk insurance.

C.5.4.2. Task 2A - Analysis of War Risk Market and FAA Policy Pricing. As tasked.

It is necessary that FAA monitor the commercial marketplace as to the premium pricing methodology used in commercial insurance. The contractor must have access to the aviation insurance markets and provide FAA with an annual analysis of the war risk market. Contractor will evaluate insurance terms and coverage and conduct premium analysis. The contractor will identify and contrast the various risk factors which affect the premium determination. After completing this analysis, the contractor will render an opinion as to the reasonableness of insurance pricing of commercial war risk insurance coverage.

C.5.4.3. Task 2B – Periodic Research on Commercial Insurance Market. As tasked.

At this time the FAA provides only war risk insurance; however, the authority exists in chapter 443 to provide all risk insurance and reinsurance. From time to time, it may be necessary for the contractor to survey other aspects of the insurance markets to identify factors and perils that insurance underwriters employ in structuring their premium rate calculations. Contractor may be tasked to determine the effects of establishing deductibles, and to determine rates and limits available. Contractor may be required to conduct other insurance research as tasked.

C.5.4.4. Task 2C - Review of non-premium war risk policy. As tasked.

The FAA is revising its non-premium war risk insurance policy. The contractor will review the current non-premium policy draft, and make recommendations to ensure the policies are consistent with the commercial insurance market and identify any coverage gaps that might exist.

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C.5.5. Task Area 3 – Claims Procedures Manual. As tasked.

C.5.5.1. In anticipation of a loss to an FAA-insured aircraft, the contractor is required to recommend procedures, subject to Government approval, to be implemented if there is such a loss. The requirement is to structure a professional, full service arrangement, as is done in commercial practice, and prepare a written manual developed specifically for FAA that contains all the steps necessary to resolve a claim.

It is understood that the manual will contain more details than may be necessary for any single event; however, the overall content should address proposed actions for a wide range of damages, from a simple hull event to a worst case scenario in which there is catastrophic loss.

The instructions should describe the different actions to be taken for both hull and liability claims stemming from both an international event and a U.S. domestic event.

The Manual should include the list of preferred subcontractors.

C.5.5.2 Task 3A– Annual Update of Claims Procedures Manual. As tasked in Option Years 1-4.

If FAA exercises an option to renew the contract, the contractor will update the Claims Procedures Manual at least once a year (if changes are necessary), and update subcontractor arrangements as they occur to reflect any changes that may have developed.

C.5.6. Task Area 4 - Table Top Exercises

C.5.6.1 In order to maintain readiness to respond to an aviation loss event, it is essential to plan a response. FAA may require the contractor to plan, organize, and conduct two simulated (table top) exercises to test the effectiveness of the procedures. Both exercises should be conducted as a drill to train for a real event. The duration of each exercise would be one to two days. The contractor will work with FAA to define the scenarios’ specifics. One possible structure for the scenarios could be to organize the component into three separate phases: 1. Initial - to consider immediate actions; 2. Interim - to discuss the details and procedures involved; and 3.

Final - to resolve payment including liability settlements. Contractor will provide a report documenting the results of each exercise and recommend actions to be taken to remedy any perceived deficiencies.

C.5.6.2. Task 4A – Table Top Exercise #1. As tasked.

The first exercise should simulate a major international event. This exercise should be conducted by the Claims Manager, and should involve designated subcontractors, FAA, and other government agencies that might be involved in an event. The exercise can be scheduled as a one or two day event, and the scenario should involve hull loss, passenger injury and death, and third party liability. Contractor will provide a report documenting the results of the exercise and actions to be taken to remedy any perceived deficiencies.

C.5.6.3. Task 4B – Table Top Exercise #2. As tasked.

The second exercise should simulate an event with a DOD contract mission that occurs at a location to be determined by FAA. This exercise should be conducted by the Claims

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Manager with designated subcontractors, FAA and other government agencies that might be involved in an event. The exercise can be scheduled as a one or two day event and the scenario should involve hull loss, passenger injury and death, and third party liability. Contractor will provide a report documenting the results of the exercise and actions to be taken to remedy any perceived deficiencies.

C.5.7. Task 5 – Legal Research Reporting. As tasked.

FAA may have a need for accessing legal opinions on pending claim matters. FAA may seek information on legal precedents affecting aviation claims, as well as legal research published in legal publications.

C.5.8. Task 6 - Risk Management and Brokerage Services. As tasked.

The contractor may be tasked to identify and evaluate risk transfer techniques as to their applicability, availability and cost effects on FAA insurance program. The contractor may be tasked to implement such a technique. This analysis will be used to determine that FAA is insuring aircraft at levels commensurate with the fair market/resale values that are provided in the commercial market.

C5.9. Task 7 - Aircraft Appraisal. As tasked.

Contractor may be tasked to conduct a desk top appraisal of FAA insured aircraft based on aircraft type, aircraft age, engine model, airframe hours, maintenance cycles, noise class, etc. in order to determine market/resale value.

C.5.10 - Task Area 8 - Claims Settlement (Including loss event response).

The Contractor will have an overriding duty to act in FAA’s best interests in responding to a loss event.

C.5.10.1. If an aircraft event results in damage to or loss of an FAA insured aircraft or personal injury or death occurs as a result of the incident, the FAA will issue a task to the Contractor, who will immediately assesses the situation and make a recommendation to FAA regarding the actions to be taken. The Contractor will lead and coordinate the complex components of accident response and claims settlement. In a loss event, the Contractor may hire subcontractors to handle specific areas of responsibilities.

Subcontracts may include, but are not limited to services for: engineering, environmental mitigation, investigation, legal, loss adjusting, medical, property damage, salvage, search and rescue, security and other entities needed to settle a claim. Subcontractors may be tasked to go on-site to assess damage, negotiate with leasing companies and other insurance companies, assist with financial matters, engage with local authorities, and perform other tasks in order to establish the validity of a claim. The Contractor will be responsible for managing subcontracts.

Claims settlement can be broken down into two separate categories: 1) Hull loss, which can be further broken down to partial loss and total loss, and 2) Liability which is concerned with property damage and injury or death to passengers and third party claimants. The Contractor shall use best commercial insurance industry practices to negotiate/settle claims in the same

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C.5.10.2. Task 8A – Non-Urgent Response. As tasked.

Following a loss event that does not require an urgent response, the FAA and the Contractor may communicate orally for FAA to advise the Contractor whether the loss event involves an FAA insured aircraft, and to discuss particular actions that the Contractor should undertake in connection with that loss event. At the request of the Contracting Officer’s Representative (COR) (or a designated alternate COR), the FAA Contracting Officer may issue a Task Order to authorize the Contractor to perform specific actions and provide deliverables that are necessary in connection with that loss event. These actions may be performed by the Contractor’s subcontractors. The Task Order may be issued orally, and shall be confirmed in writing within five (5) days). TheTask Order will obligate a stated maximum amount of funding to be available for this purpose. The Contractor may not undertake any action that would cause an expenditure exceeding that stated maximum amount. That stated amount must remain within the overall contract ceiling, which is stated in Section B.

C.5.10.3 Task 8B – Urgent Response. Upon loss event.

A loss event to an FAA-insured aircraft may occur in which the Contractor must urgently provide services or materials directly or through subcontractors in order to mitigate damages or meet immediate legal requirements of the FAA.

The FAA Aviation Insurance Program Office will provide to the Contractor the appropriate and current contact information (the “Emergency Contact List”) for the purpose of the Contractor’s obtaining urgent authorization from an authorized FAA representative, as described next. The Emergency Contact List shall be comprised of contact information for members of the FAA Aviation Insurance Program Staff and Contracting Officers, including, but not limited to, the Contracting Officer assigned to the contract.

In order to facilitate rapid provision of services or materials, the Contracting Officer will issue, in advance, a Standing Task Order that allows the Contractor (or any of its subcontractors) to begin work immediately, but only upon specific approval from an authorized FAA representative identified on the Emergency Contact List. The Standing Task Order shall state a maximum amount of funding to be available for urgent responses, and the time period for which authority is active under that Standing Task Order. That stated amount must remain within the overall contract ceiling, which is stated in Section B.

The funding to be provided for an urgent response to a specific loss event may be all or part of the amount provided under the Standing Task Order, but may not exceed that amount. The actions to be carried out and amount to be approved as available for the specific urgent response shall be agreed upon between the Contractor and the authorized FAA representative.

Those actions and that amount shall be considered to be one or more subtasks, as appropriate, under the Standing Task Order. The approval may be oral, and shall be confirmed in writing within five (5) days. As soon as practicable after issuing such approval, the authorized FAA representative who approved the action or actions and the funding, shall obtain confirmation of that approval from a Contracting Officer, unless that authorized FAA representative is a

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Contracting Officer.

The Contractor may obtain further approvals for urgent materials or services as may be necessary for the urgent response, under the Standing Task Order, in the manner set forth above. Any further funding provided in the manner is subject to the limit on maximum funding stated in the Standing Task Order.

For claims associated with airlines flying under DOD contracts, the initial response may be coordinated by DOD personnel when requested by FAA.

C.5.10.4 Task 8C – Follow-on Response. As tasked.

Follow-on response may be executed in several stages, as FAA may determine. The Claims Manager will assist FAA through the entire process, beginning with initial notification, through investigation, evaluation, recommendations, and finally the resolution of claims, subject to FAA approval.

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C.6 Task Outline

TASK OUTLINE

TASK AREA 1 - Contractor Prepare for Claim All Years Required

1A - Annual Meeting All Years Required

1B - Phone Consultations All Years Required

TASK AREA 2 - Commercial Market

2A - Analysis of War Risk Insurance Market As Tasked

2B - Periodic Research As Tasked

2C - Non Premium Policy As Tasked

TASK AREA 3 - Create Procedures Manual

3A - Update Manual As Tasked

TASK AREA 4 -Top of Exercise

4A - Commercial Event As Tasked

4B - DOD Event As Tasked

TASK AREA 5 - Legal Research As Tasked

TASK AREA 6 - Risk Management & Brokerage Services As Tasked

TASK AREA7 - Aircraft Appraisal As Tasked

TASK AREA 8 - Claims Settlement

8A - Non-Urgent As Tasked

8B - Urgent Upon Loss Event

8C - Follow-On As Tasked