Corrected DRAFT Reinsurance Broker SOO 3.3.22.docx

Reinsurance Broker Services Draft Statement of Objectives (SOO) FEMA-FIMA Reinsurance Program Reinsurance Broker Services Draft Statement of Objectives (SOO)

Table of Contents

I Background

The National Flood Insurance Program (NFIP) was created in 1968 as a result of the continuing periodic flood disasters experienced by communities throughout the US that damaged or destroyed infrastructure, buildings, and homes, making it difficult for the communities and their residents to recover. The mission of the NFIP is to (1) identify the special flood hazard areas (SFHAs), (2) develop standards for effective floodplain management in those SFHAs and (3) provide flood insurance to building and homeowners.

The NFIP has experienced many large flood disasters over its history, particularly in the years 2005, 2008 and 2012, and has thereby incurred a significant debt to the US Treasury of $24.6 billion as a result of the flood disasters and the carrying charges on the debt. Historically, the Federal Insurance and Mitigation Administration (FIMA) have utilized a limited set of tools in managing the volatility of the NFIP’s risk exposure. Therefore, at the beginning of 2017, FIMA implemented a reinsurance program to transfer some NFIP insurance risk to the private sector as an additional method of managing the NFIP’s financial risk.

The Federal Emergency Management Agency (FEMA) has evaluated the NFIP’s risk profile in order to quantify its financial risks and to explore ways to better manage the potentially large losses that the NFIP could incur. Previous analyses show the potential annual losses with a probable maximum loss (PML) estimated at over $20 billion at the 1% level and over $40 billion at the 0.1% level.

FEMA has determined reinsurance to be an important mechanism to transfer a portion of the NFIP‘s insurance risk to the private sector reinsurance and capital markets. The reinsurance model allows primary insurers to transfer some portion of insurance risk exposures to the reinsurance markets. This risk transfer mechanism spreads the impact of the insured risks of disasters across the global financial system rather than falling on a single insurer or handful of institutions.

FIMA implemented the NFIP Reinsurance Program (NRP) on January 1, 2017. The primary objective of the NRP is to reduce the risk and volatility of the NFIP through implementation of a shared financial risk model. FIMA is building a long term NRP and expects that it will continue to evolve. FIMA’s primary condition of success for the NRP will be the extent to which the NRP reduces the risk and volatility of the NFIP at a fair and reasonable price to the Government and subject to the availability of funds.

To support the continued execution of the NRP, FIMA requires reinsurance brokerage expertise to provide the services set forth within this SOO. FIMA intends to use one broker to achieve this objective.

II Scope

The purpose of this acquisition is to obtain support services from a reinsurance broker as FIMA continues to build and expand the NRP. FIMA has separated the required broker support services into four Work Areas – Strategy, Development, Market Execution, and Modeling and Analytics, as described below. Compensation for these work areas would include potential multiple placements effective within a one-year period.

Work Areas Work Area 0 – Financial Advisory and Training/Consultation Services

· The Broker will provide ongoing overall financial advisory services to FEMA-FIMA as needed, particularly through the development of annual and long-term goals, metrics, strategy, and engagement coordination with key stakeholders.

Work Area 1 – Strategy Within this Work Area, the Broker is required to provide reinsurance strategy development and financial advisory services. The Work Area 1 objectives are:

· The Broker will develop comprehensive strategies for the following reinsurance structures that could be implemented by FEMA-FIMA:

· Work area 1.1: Expansion on existing reinsurance structure

· Work area 1.2: Alternative or new traditional reinsurance structures

· The strategies should consider the NFIP’s current financial conditions and future financial goals, federal law (statutes and regulations), FEMA leadership priorities, NFIP budget, and work within the existing and future capital market and traditional placements

· The Broker will review modeling results to inform reinsurance strategies

· Assist FEMA-FIMA in identifying possible hurdles to any given structure and potential solutions

· Provide administrative support and training for leadership and staff meetings To support development of these strategies, the Broker will have access to NFIP data, modeling results, and FEMA-FIMA staff to learn more about NFIP financial framework and leadership priorities, subject to Federal and FEMA security processes and information sharing procedures. The Broker will have the opportunity to ask questions and give feedback on the data modeling process and results. For each work area, FEMA will select the most effective strategy.

Work Area 2 – Development This Work Area is applicable when a new reinsurance structure is selected. Strategies that are expansions of existing reinsurance structures may not require a significant Development phase (Work Area 2) and can move rapidly into the Market Execution phase (Work Area 3).

The Work Area 2 objectives are:

· Work Area 2 requires the Broker to create new reinsurance structures for the NRP for the following:

· Work area 2.1: Alternative or new traditional reinsurance structures

· The Broker will align FEMA-FIMA leadership and staff to purpose and outcomes of the new structure, including holding educational sessions

· The Broker will design the infrastructure for the structure to include the development of programmatic and contractual materials and assist in developing any standard operating procedures.

· The Broker will provide ongoing support to FEMA-FIMA as the structure is developed.

Work Area 3 – Market Execution This Work Area encompasses the market outreach and placement of the FEMA-FIMA approved structure. Compensation for work performed under this Work Area is contingent on a successful placement. The Broker will execute work in a collaborative and coordinated manner with FEMA.

The Work Area 3 objectives are:

· Work Area 3 requires the Broker to market and place the following structures:

· Work area 3.1: Expansion on existing reinsurance structure

· Work area 3.2: Alternative or new traditional reinsurance structures

· The Broker will support FEMA-FIMA in the market outreach effort as described in the Strategy and Development phases and include a detailed analysis of the reinsurance markets

· The Broker will implement the strategy developed in Work Area 1.1 including, but not limited to, analyses, consulting support, contract upgrades, standard operating procedures, and marketing material

· The Broker will assist FEMA-FIMA in the preparation of all documentation associated with reinsurance agreements

· The Broker will support FEMA-FIMA in solicitation, negotiation, and award of reinsurance agreement(s)

· At FEMA-FIMA’s option, the Broker will serve as an advisor during the price discovery and award process. FEMA-FIMA will make the final decision about reinsurers’ price/Final Order Terms (FOT) if FEMA-FIMA elects to release FOT.

· Alternatively, FEMA-FIMA may elect to use an independent online marketplace to determine price and coverage amount.

· The Broker will assist FEMA in presenting a single NFIP risk profile to the market and ensure placements are well coordinated.

· The Broker will provide operational support of the NRP after the reinsurance is placed, including, but not limited to:

· Continuous monitoring of the NFIP’s risk profile, portfolio modeling, and data analysis

· Continuous monitoring and analysis of individual reinsurers and the reinsurance market as a whole,

· Cooperation with any additional contractors that are under contract with FIMA to assist in their understanding of the objectives and progress of the NRP

· The broker will conduct premium payments and claim recoveries on FEMA’s behalf in accordance with the process outlined by FEMA in Appendix E – FEMA Reinsurance Broker as Fiscal Administrator. If the Broker agrees to provide these services, the appended language needs to be included in the proposal in its exact form.

Work Area 4 –Modeling and Analytics Modeling in support of FEMA’s reinsurance initiative and related placement(s) This Work Area requires the Broker to perform data modeling and analysis to inform yearly NRP design as well as enable successful delivery of the NFIP’s risk profile to reinsurance markets.

· The Broker will review and understand the NFIP data provided by FEMA-FIMA and enhance and augment as necessary. The NFIP has approximately four million contracts in the United States. The NFIP premiums are based on a number of factors including the number of floors, occupancy, elevation, location, and differentiation based on basement/crawlspace.

· FEMA-FIMA will provide relevant geographic and structural characteristics for its policyholders from its System of Record, Pivot, in order to effectively prepare NFIP exposure data for catastrophic risk modeling.

· The Broker will review the original data provided by FEMA-FIMA and perform initial quality-checks to ensure data has been appropriate transferred and captured in the data extract. The Broker will also compare year-over-year changes to the original data extract and note any anomalies or significant changes in the data before proceeding with the data augmentation.

· Using the latest NFIP exposure and claims data provided by FEMA-FIMA, the Broker will refine and enhance that data so that it is suitable for catastrophic risk modeling. Then, using the refined data, model the NFIP risk profile using at least three flood risk models, commercial or proprietary, to account for inland flood and coastal storm surge. Flood related perils that cannot be modeled with the use of available models shall be incorporated using additional approaches.

· The contractor will provide FEMA-FIMA with the benefit of the Broker’s perspective regarding the nuances of each model and modeling issues in general.

· When requested, the contractor will collaborate with FEMA-FIMA on risk management governance and partner in addressing FEMA-FIMA’s risk management strategies.

· The contractor will conduct analysis and advise FEMA-FIMA on how to combine the results from multiple models in a scientifically credible fashion, taking into account the individual characteristics of FEMA-FIMA’s portfolio of exposures and historical loss experience. Additionally, the contractor will advise FEMA-FIMA about the relative strengths and weaknesses of models in their various aspects, for example, perils or geography, and how “model blending” can combine the best from multiple models. The result will be a customized view of catastrophe exposure that is much more specific, with less direct reliance on any one vendor model, and is easily understood and justifiable to management and stakeholders.

· The contractor will evaluate and adjust commercial models where available and develop models to fill gaps in coverage where FEMA-FIMA requires additional analysis.

· The contractor will utilize post-processing tools to build a sound blending of multiple models and combine model output across perils. The contractor will extend ensemble modeling to account for non-modeled NFIP risk.

· The Broker will analyze the modeling results to produce a detailed explanation of the NFIP risk profile in a manner that will build reinsurance markets’ confidence in the data and models. The Broker will consult with the other broker during the development of the NFIP risk profile and assist the other broker with its validation of the modeling results.

· As model results are being developed, the Broker will update and adjust the model as necessary.

· The Broker may be requested to act as the system administrator for the catastrophe modeling environment within the National Information Technology Center (NITC).

· The Broker will provide technical advisory services for FIMA as they develop their internal modeling environment.

Catastrophe Modeling and Actuarial Subject-Matter Expertise

· The Broker will provide technical support and subject matter expertise to FEMA as they run market baskets and the NFIP profile through the catastrophe models in the Reinsurance Broker System (RBS).

· The Broker will provide subject matter expertise on the evolving flood insurance market, providing model-change reviews as existing flood models get updated and new flood models become available. The Broker will conduct historical back-testing against NFIP claims and/or other relevant methodologies to inform FEMA-FIMA how catastrophe models should be post-processed to better reflect NFIP risk.

· Using the distribution of losses derived from the above catastrophic risk modeling process, the broker will provide detailed loss and other relevant statistics and metrics for the gross NFIP portfolio, ceded NFIP layers/reinsurance structure, and the NFIP portfolio net of ceded reinsurance. At FEMA-FIMA’s option, this will additionally be provided in requested geographical detail and/or multiple year projections.

Key Personnel Before replacing any individual designated as Key by the Government, the Contractor shall notify the Contracting Officer no less than fifteen (15) days in advance, submit written justification for replacement, and provide the name and qualification for any proposed substitute(s). All proposed substitutes shall possess qualification equal to or superior to those of the Key person being replaced. The Contractor shall not replace Key Contractor personnel without acknowledgment from the Contracting Officer. The following Contractor personnel are designated as Key for this requirement. Note: The Government may designate additional Contractor personnel as Key at the time of award.

Lead Broker The Contractor shall provide a Senior Broker that is responsible for all activity of the Broker Reinsurance Contract for all work areas as defined by the Statement of Objectives.

The Lead Broker must have significant relevant work experience (over 20 years) in reinsurance brokerage services and at least ten (10) years of relevant work experience in flood or other natural catastrophic perils.

Lead Data Modeler The Contractor shall provide a Senior Data Modeler that is responsible for overseeing the catastrophic risk analytics required under the Broker Reinsurance Contract for all work areas as defined by the Statement of Objectives.

The Lead Data Modeler must have significant relevant work experience (over 20 years) in reinsurance brokerage services and at least ten (10) years of relevant work experience in flood or other natural catastrophic perils.

III Assumptions and Constraints

· Communication in performance of this contract must be professional and respectful at all times.

· Aggressive timelines to implement aspects of each Work Area.

· NFIP risk profile may not be generally well understood by the reinsurance markets.

· Significant effort required to update NFIP modeling and analysis to reflect current exposure and model versions.

· Reinsurance industry decision-making processes must adapt to Federal processes and law, including inherently governmental decision-making restrictions.

· The concept of catastrophe property reinsurance and the intricacies of designing, negotiating, placing, and managing a major reinsurance program are unfamiliar to many individuals within the multi-tiered Federal decision-making process. Therefore, FEMA faces a significant learning curve when initiating and growing a reinsurance program.

· The NFIP as a Federal program may be constrained from sharing PII data with various persons and firms, including those located outside the USA.

· Due to IT security and information laws, NFIP data must stay behind the FEMA firewall. Contractors will be badged and provided laptops in order to access data. All modeling must be performed within a FEMA-secure environment and the Contractor will not be able to run the NFIP data through their own software or equipment.

· The data resulting from this work effort will be for the sole use of FEMA and cannot be used by anyone other than FEMA for any other reason or purpose. Additionally, all data provided by FEMA and data resulting from this effort must be destroyed or returned to FEMA at contract expiration.

· The Broker cannot perform any inherently governmental functions as defined in FAR Part 2.101, such as entering into a binding agreement on behalf of FIMA.

· FEMA can only engage with reinsurers that are compliant with the Trade Agreements Act and other federal government laws.

· FEMA-FIMA will: participate in all reinsurance marketing sessions and price discussions; contract drafting and negotiation; work with the Broker to conduct any needed reinsurance solicitations; and make the final decision about which reinsurers participate in the NRP.

· FEMA will protect proprietary intellectual capital shared by each broker and will not share proprietary information with the other broker unless expressly given permission to do so.

· The Broker will return to FEMA or destroy all federal records and PII at the termination of the contract, and at any other time as directed by FEMA.

IV Period & Place of Performance

The anticipated period of performance could be up to five (5) years, consisting of one (1) base year and four, one (1) year option periods.

Period of performance for data modeling will begin in the around March 2023.

1. Place of performance is the Broker’s facilities or remote. There is a minimal amount of workspace for the Contractor at FEMA facilities.

V Deliverables

Deliverables from this effort shall include (but are not limited to):

· Work area 1.1: Expansion on existing reinsurance structure

· Work area 1.2: Alternative or new traditional reinsurance structures

· Work area 1.4: Expansion of any existing structures

TBD

2: Development (for each selected work area)

3: Market Execution (for each selected work area)

Analytics Narrative documenting augmentation process and results in support of reinsurance placements, including required documentation to provide Risk Expertise in support of Insurance-Linked-Securities placements.

VI Government Furnished Information

1. Background on the previous reinsurance placements

2. Selected deliverables from the Flood Insurance Risk Studies (FIRS) including but not limited to:

a. Baseline NFIP risk profile used for the non-binding reinsurance market outreach performed in 2015

b. Dynamic Financial Analysis PowerPoint

3. Draft operations protocol

4. Data as described in Section II, Scope, above

5. Documentation of NFIP processes including underwriting and claims manuals VII Government Furnished Property

2. Portable laptops to conduct work behind the FEMA firewall. All contractor personnel performing work using or reviewing FEMA data and non-public information will require a laptop

3. A minimal amount of workspace for the Contractor at FEMA facilities

4. Access to appropriate personnel to complete all objectives of the SOO

VIII Security For Official Use Only In accordance with DHS Management Directive 11042.1 contractors, consultants, and others to whom access is granted will abide by 11042.1; DHS policy regarding the identification and safeguarding of sensitive but unclassified information originated within DHS. It also applies to other sensitive but unclassified information received by DHS from other government and non-governmental activities. The contractor will:

1. Be aware of and comply with the safeguarding requirements for “For Official Use Only” (FOUO) information as outlined in this directive.

2. Participate in formal classroom or computer-based training sessions presented to communicate the requirements for safeguarding FOUO and other sensitive but unclassified information.

3. Be aware that divulging information without proper authority could result in administrative or disciplinary action.

Contractors and Consultants shall:

Execute a DHS Form 11000-6, Sensitive b ut Unclassified Information Non Disclosure Agreement (NDA), as a condition of access to such information. Other individuals not assigned to or contractually obligated to DHS, but to whom access to information will be granted, may be requested to execute an N DA as determined by the applicable program manager. Execution of the N DA shall be effective upon publication of this directive and not applied retroactively.

Standard Security

BACKGROUND INVESTIGATIONS

All contractor personnel who require access to DHS or FEMA information systems, routine access to DHS or FEMA facilities, or access to sensitive information, including but not limited to Personally Identifiable Information (PII), shall be subject to a full background investigation commensurate with the level of the risk associated with the job function or work being performed. FEMA’s Personnel Security Division (PSD) will determine the risk designation for each contractor position by comparing the functions and duties of the position against those of a same or similar federal position, applying the same standard for evaluating the associated potential for impact on the integrity and efficiency of federal service.

Low Risk without Information System Access Contractor personnel occupying positions or performing functions with a Low-Risk designation and who do not require access to DHS or FEMA information systems may undergo a Tier 1 investigation with a credit check and must receive a favorable adjudication thereof from FEMA PSD prior to performing work under this contract. (Also reference Facility Access).

Low Risk with Information System Access Contractor personnel occupying positions or performing functions with a Low-Risk designation and who require access to DHS or FEMA information systems shall undergo a Tier 2 Suitability Background Investigation (T2) and must receive a favorable adjudication thereof from FEMA PSD prior to performing work under this contract.

Moderate Risk Contractor personnel occupying positions or performing functions with a Moderate Risk designation shall undergo a Tier 2 Suitability Background Investigation (T2) and must receive a favorable adjudication thereof from FEMA PSD prior to performing work under this contract.

High Risk Contractor personnel occupying positions or performing functions with a High-Risk designation shall undergo a Tier 4 Suitability Background Investigation (T4) and must receive a favorable adjudication thereof from FEMA PSD prior to performing work under this contract.

Background Investigation Process To initiate the request to process contractor personnel, the Contractor shall provide the FEMA Contracting Officer’s Representative (COR) with all required information and comply with all necessary instructions to complete Section II of the FEMA Form 121-3-1-6, “Contract Fitness/Security Screening Request.” The FEMA COR shall ensure that all other applicable sections of the FEMA Form 121-3-1-6 are complete prior to submitting the form to FEMA PSD for processing. The Contractor shall also provide the FEMA COR with completed OF 306, “Declaration for Federal Employment,” forms for all contractor personnel.

Contractor personnel who already have a favorably adjudicated background investigation, may be eligible to perform work under this contract without further processing by FEMA PSD if:

· the investigation was completed within the last five years,

· it meets or exceeds the minimum requirement for the position they will occupy or functions they will perform on this contract,

· the contractor personnel have not had a break in employment since the prior favorable adjudication, and,

· FEMA PSD has verified the investigation and confirmed that no new derogatory information has been disclosed which may require a reinvestigation.

FEMA PSD will notify the COR of the names of the contractor personnel eligible to work based on prior, favorable adjudication. The COR will, in turn, notify the Contractor of the names of the favorably adjudicated contractor personnel, at which time the favorably adjudicated contractor personnel will be eligible to begin work under this contract.

For those contractor personnel who do not have an acceptable, prior, favorable adjudication or who otherwise require reinvestigation, FEMA PSD will issue an electronic notification via email directly to the contractor applicant/personnel that contains the following documents, which are incorporated into this contract by reference, along with a link to the Office of Personnel Management’s (OPM) Electronic Questionnaires for Investigation Processing (e-QIP) system and instructions for submitting the necessary information:

· Standard Form 85P, “Questionnaire for Public Trust Positions”

· Optional Form 306, “Declaration for Federal Employment”

· SF 87, “Fingerprint Card” (2 copies)

· DHS Form 11000-6, “Non-Disclosure Agreement”

· DHS Form 11000-9, “Disclosure and Authorization Pertaining to Consumer Reports Pursuant to the Fair Credit Reporting Act” FEMA PSD will only accept complete packages consisting of all of the above document and Standard Form 85P, which must be completed electronically through the Office of Personnel Management’s e-QIP system. The Contractor is responsible for ensuring that all contractor personnel timely and properly submit all required background information.

Once contractor personnel have properly submitted the complete package of all required background information, FEMA’s Personnel Security Division, at its sole discretion, may grant contractor personnel temporary eligibility to perform work under this contract prior to completion of the full background investigation if the Personnel Security Division’s initial review of the contractor personnel’s background information reveals no issues of concern. In such cases, FEMA’s Personnel Security Division will provide notice of such temporary eligibility to the COR who will then notify the Prime Contractor, at which time the identified contractor personnel will be temporarily eligible to begin work under this contract. Neither the Prime Contractor nor the contractor personnel have any right to such a grant of temporary eligibility. The grant of such temporary eligibility shall not be considered as assurance that the contactor personnel will remain eligible to perform work under this contract upon completion of and final adjudication of the full background investigation.

Upon favorable adjudication of the full background investigation, FEMA’s Personnel Security Division will update the contractor personnel’s security file and take no further action. In any instance where the final adjudication results in an unfavorable determination FEMA’s Personnel Security Division will notify the contractor personnel directly, in writing, of the decision and will provide the COR with the name(s) of the contractor personnel whose adjudication was unfavorable. The COR will then forward that information to the Contractor. Contractor personnel who receive an unfavorable adjudication shall be ineligible to perform work under this contract. Unfavorable adjudications are final and not subject to review or appeal.

Continued Eligibility and Reinvestigation Eligibility determinations based on a Low Risk T1, Moderate Risk T2S or High Risk T4 are valid for five years from the date that the investigation was completed and closed. Contractor personnel required to undergo a background investigation to perform work under this contract shall be ineligible to perform work under this contract upon the expiration the background investigation unless and until the contractor personnel have undergone a reinvestigation and FEMA’s Personnel Security Division has renewed their eligibility to perform work under this contract.

Exclusion by Contracting Officer The Contracting Officer, independent of FEMA’s Personnel Security Division, may direct the Contractor be excluded from working on this contract. Any contractor found or deemed to be unfit or whose continued employment on the contract is deemed contrary to the public interest or inconsistent with the best interest of the agency may be removed.

FACILITY ACCESS

The Contractor shall comply with FEMA Directive 121-1 “FEMA Personal Identity Verification Guidance,” FEMA Directive 121-3 “Facility Access,” and FEMA Manual 121-3-1 “FEMA Credentialing Access Manual,” to arrange for contractor personnel’s access to FEMA facilities, which includes, but is not limited to, arrangements to obtain any necessary identity badges for contractor personnel.

Contractor personnel working within any FEMA facility who do not require access to DHS or FEMA IT systems and do not qualify for a PIV Card may be issued a Facility Access Card (FAC). FACs cannot exceed 180 days; all contractors requiring access greater than 180 days will need to qualify for and receive a PIV card before being allowed facility access beyond 180 days.

Contractor personnel shall not receive a FAC until they have submitted a SF 87, “Fingerprint Card,” and receive approval from FEMA PSD. Contractor personnel using a FAC for access to FEMA facilities must be escorted in Critical Infrastructure areas (i.e., server rooms, weapons rooms, mechanical rooms, etc.) at all times.

FEMA may deny facility access to any contractor personnel whom FEMA’s Office of the Chief Security Officer has determined to be a potential security threat.

The Contractor shall notify the FEMA COR of all terminations/resignations within five calendar days of occurrence. The Contractor must account for all forms of Government-provided identification issued to contractor employees under a contract (i.e., the PIV cards or other similar badges) must return such identification to FEMA as soon as any of the following occurs:

· When no longer needed for contract performance.

· Upon completion of a contractor employee’s employment.

· Upon contract completion or termination.

If an identification card or building pass is not available to be returned, the Contractor shall submit a report to the FEMA COR, referencing the pass or card number, name of the individual to whom it was issued, and the last known location and disposition of the pass or card.

The Contractor or contractor personnel’s failure to return all DHS- or FEMA-issued identification cards and building passes upon expiration, upon the contractor personnel’s removal from the contract, or upon demand by DHS or FEMA may subject the contractor personnel and the Contractor to civil and criminal liability.

OPSEC Training Contractors and Subcontractors who are working on this contract shall receive the OPSEC Awareness Brief.

Access to the briefing can be obtained at http://cdsetrain.dtic.mil/opsec Send the certificate of completion to the FEMA Contracting Officer Representative no later than 30 calendar days after awarded contract. New employees entering the contract must receive the briefing within ten (10) business days of joining the contract.

Privacy

SAFEGUARDING OF SENSITIVE INFORMATION (MAR 2015)

(a) Applicability. This clause applies to the Contractor, its subcontractors, and Contractor employees (hereafter referred to collectively as “Contractor”). The Contractor shall insert the substance of this clause in all subcontracts.

(b) Definitions. As used in this clause—

“Personally Identifiable Information (PII)” means information that can be used to distinguish or trace an individual's identity, such as name, social security number, or biometric records, either alone, or when combined with other personal or identifying information that is linked or linkable to a specific individual, such as date and place of birth, or mother’s maiden name. The definition of PII is not anchored to any single category of information or technology. Rather, it requires a case-by-case assessment of the specific risk that an individual can be identified. In performing this assessment, it is important for an agency to recognize that non-personally identifiable information can become personally identifiable information whenever additional information is made publicly available—in any medium and from any source—that, combined with other available information, could be used to identify an individual.

PII is a subset of sensitive information. Examples of PII include, but are not limited to: name, date of birth, mailing address, telephone number, Social Security number (SSN), email address, zip code, account numbers, certificate/license numbers, vehicle identifiers including license plates, uniform resource locators (URLs), static Internet protocol addresses, biometric identifiers such as fingerprint, voiceprint, iris scan, photographic facial images, or any other unique identifying number or characteristic, and any information where it is reasonably foreseeable that the information will be linked with other information to identify the individual.

“Sensitive Information” is defined in HSAR clause 3052.204-71, Contractor Employee Access, as any information, which if lost, misused, disclosed, or, without authorization is accessed, or modified, could adversely affect the national or homeland security interest, the conduct of Federal programs, or the privacy to which individuals are entitled under section 552a of Title 5, United States Code (the Privacy Act), but which has not been specifically authorized under criteria established by an Executive Order or an Act of Congress to be kept secret in the interest of national defense, homeland security or foreign policy. This definition includes the following categories of information:

(1) Protected Critical Infrastructure Information (PCII) as set out in the Critical Infrastructure Information Act of 2002 (Title II, Subtitle B, of the Homeland Security Act, Public Law 107- 296, 196 Stat. 2135), as amended, the implementing regulations thereto (Title 6, Code of Federal Regulations, Part 29) as amended, the applicable PCII Procedures Manual, as amended, and any supplementary guidance officially communicated by an authorized official of the Department of Homeland Security (including the PCII Program Manager or his/her designee);

Sensitive Security Information (SSI), as defined in Title 49, Code of Federal Regulations, Part 1520, as amended, “Policies and Procedures of Safeguarding and Control of SSI,” as amended, and any supplementary guidance officially communicated by an authorized official of the Department of Homeland Security (including the Assistant Secretary for the Transportation Security Administration or his/her designee).

(2) Information designated as “For Official Use Only,” which is unclassified information of a sensitive nature and the unauthorized disclosure of which could adversely impact a person’s privacy or welfare, the conduct of Federal programs, or other programs or operations essential to the national or homeland security interest; and

(3) Any information that is designated “sensitive” or subject to other controls, safeguards, or protections in accordance with subsequently adopted homeland security information handling procedures.

“Sensitive Information Incident” is an incident that includes the known, potential, or suspected exposure, loss of control, compromise, unauthorized disclosure, unauthorized acquisition, or unauthorized access or attempted access of any Government system, Contractor system, or sensitive information.

“Sensitive Personally Identifiable Information (SPII)” is a subset of PII, which if lost, compromised, or disclosed without authorization, could result in substantial harm, embarrassment, inconvenience, or unfairness to an individual. Some forms of PII are sensitive as stand-alone elements. Examples of such PII include Social Security numbers (SSN), driver’s license or state identification number, Alien Registration Numbers (A-number), financial account number, and biometric identifiers such as fingerprint, voiceprint, or iris scan. Additional examples include any groupings of information that contain an individual’s name or other unique identifier plus one or more of the following elements:

(1) Truncated SSN (such as last 4 digits)

(2) Date of birth (month, day, and year)

(3) Citizenship or immigration status

(4) Ethnic or religious affiliation

(5) Sexual orientation

(6) Criminal History

(7) Medical Information

(8) System authentication information such as mother’s maiden name, account passwords or personal identification numbers (PIN)

Other PII may be “sensitive” depending on its context, such as a list of employees and their performance ratings or an unlisted home address or phone number. In contrast, a business card or public telephone directory of agency employees contains PII but is not sensitive.

(c) Authorities. The Contractor shall follow all current versions of Government policies and guidance accessible at http://www.dhs.gov/dhs-security-and-training-requirements-contractors, or available upon request from the Contracting Officer, including but not limited to:

(1) DHS Management Directive 11042.1 Safeguarding Sensitive But Unclassified (for Official Use Only) Information

(2) DHS Sensitive Systems Policy Directive 4300A

(3) DHS 4300A Sensitive Systems Handbook and Attachments

(4) DHS Security Authorization Process Guide

(5) DHS Handbook for Safeguarding Sensitive Personally Identifiable Information

(6) DHS Instruction Handbook 121-01-007 Department of Homeland Security Personnel Suitability and Security Program

(7) DHS Information Security Performance Plan (current fiscal year)

(8) DHS Privacy Incident Handling Guidance

(9) Federal Information Processing Standard (FIPS) 140-2 Security Requirements for Cryptographic Modules accessible at http://csrc.nist.gov/groups/STM/cmvp/standards.html

(10) National Institute of Standards and Technology (NIST) Special Publication 800-53 Security and Privacy Controls for Federal Information Systems and Organizations accessible at http://csrc.nist.gov/publications/PubsSPs.html

(11) NIST Special Publication 800-88 Guidelines for Media Sanitization accessible at http://csrc.nist.gov/publications/PubsSPs.html

(d) Handling of Sensitive Information. Contractor compliance with this clause, as well as the policies and procedures described below, is required.

(1) Department of Homeland Security (DHS) policies and procedures on Contractor personnel security requirements are set forth in various Management Directives (MDs), Directives, and Instructions. MD 11042.1, Safeguarding Sensitive But Unclassified (For Official Use Only) Information describes how Contractors must handle sensitive but unclassified information. DHS uses the term “FOR OFFICIAL USE ONLY” to identify sensitive but unclassified information that is not otherwise categorized by statute or regulation. Examples of sensitive information that are categorized by statute or regulation are PCII, SSI, etc. The DHS Sensitive Systems Policy Directive 4300A and the DHS 4300A Sensitive Systems Handbook provide the policies and procedures on security for Information Technology (IT) resources. The DHS Handbook for Safeguarding Sensitive Personally Identifiable Information provides guidelines to help safeguard SPII in both paper and electronic form. DHS Instruction Handbook 121-01-007 Department of Homeland Security Personnel Suitability and Security Program establishes procedures, program responsibilities, minimum standards, and reporting protocols for the DHS Personnel Suitability and Security Program.

(2) The Contractor shall not use or redistribute any sensitive information processed, stored, and/or transmitted by the Contractor except as specified in the contract.

(3) All Contractor employees with access to sensitive information shall execute DHS Form 11000-6, Department of Homeland Security Non-Disclosure Agreement (NDA), as a condition of access to such information. The Contractor shall maintain signed copies of the NDA for all employees as a record of compliance. The Contractor shall provide copies of the signed NDA to the Contracting Officer’s Representative (COR) no later than two (2) days after execution of the form.

(4) The Contractor’s invoicing, billing, and other recordkeeping systems maintained to support financial or other administrative functions shall not maintain SPII. It is acceptable to maintain in these systems the names, titles and contact information for the COR or other Government personnel associated with the administration of the contract, as needed.

(e) Authority to Operate. The Contractor shall not input, store, process, output, and/or transmit sensitive information within a Contractor IT system without an Authority to Operate (ATO) signed by the Headquarters or Component CIO, or designee, in consultation with the Headquarters or Component Privacy Officer. Unless otherwise specified in the ATO letter, the ATO is valid for three (3) years. The Contractor shall adhere to current Government policies, procedures, and guidance for the Security Authorization (SA) process as defined below.

(1) Complete the Security Authorization process. The SA process shall proceed according to the DHS Sensitive Systems Policy Directive 4300A (Version 11.0, April 30, 2014), or any successor publication, DHS 4300A Sensitive Systems Handbook (Version 9.1, July 24, 2012), or any successor publication, and the Security Authorization Process Guide including templates.

(i) Security Authorization Process Documentation. SA documentation shall be developed using the Government provided Requirements Traceability Matrix and Government security documentation templates. SA documentation consists of the following: Security Plan, Contingency Plan, Contingency Plan Test Results, Configuration Management Plan, Security Assessment Plan, Security Assessment Report, and Authorization to Operate Letter. Additional documents that may be required include a Plan(s) of Action and Milestones and Interconnection Security Agreement(s). During the development of SA documentation, the Contractor shall submit a signed SA package, validated by an independent third party, to the COR for acceptance by the Headquarters or Component CIO, or designee, at least thirty (30) days prior to the date of operation of the IT system. The Government is the final authority on the compliance of the SA package and may limit the number of resubmissions of a modified SA package. Once the ATO has been accepted by the Headquarters or Component CIO, or designee, the Contracting Officer shall incorporate the ATO into the contract as a compliance document. The Government’s acceptance of the ATO does not alleviate the Contractor’s responsibility to ensure the IT system controls are implemented and operating effectively.

(ii) Independent Assessment. Contractors shall have an independent third party validate the security and privacy controls in place for the system(s). The independent third party shall review and analyze the SA package, and report on technical, operational, and management level deficiencies as outlined in NIST Special Publication 800-53 Security and Privacy Controls for Federal Information Systems and Organizations. The Contractor shall address all deficiencies before submitting the SA package to the Government for acceptance.

Support the completion of the Privacy Threshold Analysis (PTA) as needed. As part of the SA process, the Contractor may be required to support the Government in the completion of the PTA. The requirement to complete a PTA is triggered by the creation, use, modification, upgrade, or disposition of a Contractor IT system that will store, maintain, and use PII, and must be renewed at least every three (3) years. Upon review of the PTA, the DHS Privacy Office determines whether a Privacy Impact Assessment (PIA) and/or Privacy Act System of Records Notice (SORN), or modifications thereto, are required. The Contractor shall provide all support necessary to assist the Department in completing the PIA in a timely manner and shall ensure that project management plans and schedules include time for the completion of the PTA, PIA, and SORN (to the extent required) as milestones. Support in this context includes responding timely to requests for information from the Government about the use, access, storage, and maintenance of PII on the Contractor’s system, and providing timely review of relevant compliance documents for factual accuracy. Information on the DHS privacy compliance process, including PTAs, PIAs, and SORNs, is accessible at http://www.dhs.gov/privacy-compliance.

(2) Renewal of ATO. Unless otherwise specified in the ATO letter, the ATO shall be renewed every three (3) years. The Contractor is required to update its SA package as part of the ATO renewal process. The Contractor shall update its SA package by one of the following methods:

(1) Updating the SA documentation in the DHS automated information assurance tool for acceptance by the Headquarters or Component CIO, or designee, at least 90 days before the ATO expiration date for review and verification of security controls; or (2) Submitting an updated SA package directly to the COR for approval by the Headquarters or Component CIO, or designee, at least 90 days before the ATO expiration date for review and verification of security controls. The 90-day review process is independent of the system production date and therefore it is important that the Contractor build the review into project schedules. The reviews may include onsite visits that involve physical or logical inspection of the Contractor environment to ensure controls are in place.

(3) Security Review. The Government may elect to conduct random periodic reviews to ensure that the security requirements contained in this contract are being implemented and enforced. The Contractor shall afford DHS, the Office of the Inspector General, and other Government organizations access to the Contractor’s facilities, installations, operations, documentation, databases, and personnel used in the performance of this contract. The Contractor shall, through the Contracting Officer and COR, contact the Headquarters or Component CIO, or designee, to coordinate and participate in review and inspection activity by Government organizations external to the DHS. Access shall be provided, to the extent necessary as determined by the Government, for the Government to carry out a program of inspection, investigation, and audit to safeguard against threats and hazards to the integrity, availability and confidentiality of Government data or the function of computer systems used in performance of this contract and to preserve evidence of computer crime.

(4) Continuous Monitoring. All Contractor-operated systems that input, store, process, output, and/or transmit sensitive information shall meet or exceed the continuous monitoring requirements identified in the Fiscal Year 2014 DHS Information Security Performance Plan, or successor publication. The plan is updated on an annual basis. The Contractor shall also store monthly continuous monitoring data at its location for a period not less than one year from the date the data is created. The data shall be encrypted in accordance with FIPS 140-2 Security Requirements for Cryptographic Modules and shall not be stored on systems that are shared with other commercial or Government entities. The Government may elect to perform continuous monitoring and IT security scanning of Contractor systems from Government tools and infrastructure.

(5) Revocation of ATO. In the event of a sensitive information incident, the Government may suspend or revoke an existing ATO (either in part or in whole). If an ATO is suspended or revoked in accordance with this provision, the Contracting Officer may direct the Contractor to take additional security measures to secure sensitive information. These measures may include restricting access to sensitive information on the Contractor IT system under this contract. Restricting access may include disconnecting the system processing, storing, or transmitting the sensitive information from the Internet or other networks or applying additional security controls.

(6) Federal Reporting Requirements. Contractors operating information systems on behalf of the Government or operating systems containing sensitive information shall comply with Federal reporting requirements. Annual and quarterly data collection will be coordinated by the Government. Contractors shall provide the COR with requested information within three (3) business days of receipt of the request.