Pub. L. No. 85-804, 50 U.S.C §§ 1431-1435, and Executive Order No. 10789, as amended, permit the Government to indemnify contractors against third-party claims arising out of or resulting from nuclear risks or contractual risks identified as “unusually hazardous” to the extent not otherwise covered by insurance. In its current form, Pub. L. No. 85-804 and its implementing Federal Acquisition Regulation (FAR) clause, FAR 52.250-1, afford broad indemnification, where applicable, and include limited exceptions for government claims or damage to contractor property caused by contractor “willful misconduct or lack of good faith.” See FAR 52.250-1(d).
On September 29, 2010, however, Reps. Earl Blumenauer (D-OR) and Kurt Schrader (D-OR) introduced legislation in the House (H.R. 6310), and Sens. Ron Wyden (D-OR) and Jeff Merkley (D-OR) offered legislation in the Senate (S. 3909) that would limit indemnification under Pub. L. No. 85-804 for Department of Defense (DoD) contractors. H.R. 6310 and S.3909—called the “Accountability for Defense Contractors Act”—would bar indemnification of DoD contractors for government claims against the contractor (other than those arising from subrogation); a claim, loss or damage caused by gross negligence, willful misconduct or lack of good faith on the part of the contractor’s principal officers, as defined in FAR 52.250-1; or a claim, loss or damage resulting from “unusually hazardous or nuclear risk not specified in the terms of the contract and discovered on the site where the contract is performed, or that reasonably should have been discovered at the site.” Thus, the proposed legislation, if passed, would appear to preclude indemnification of all government claims (other than those arising through subrogation) regardless of conduct, expand the "willful misconduct or lack of good faith" exception described in FAR 52.250-1 to include “gross negligence,” and expand the reach of this exception to apply to third-party claims.
In addition, the proposed legislation would amend Pub. L. No. 85-804 to require the Secretary of Defense to report to Congress on actions taken under the statute. If the action would require indemnification of $1 million or more, DoD’s report must include the name of the contractor, the cost or estimated potential cost at issue, the property or services involved, and “state further the circumstances justifying the action.” Furthermore, a DoD contract entered into under authority that provides for indemnification not authorized by 10 U.S.C. § 2354 or the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. § 9601 et seq. (CERCLA), may provide for indemnification of the contractor as the Secretary of Defense deems necessary only if the contract complies with the congressional reporting requirements and limitations on indemnification proposed in these bills.
According to press releases and the remarks of Rep. Blumenauer, the legislation is prompted by a lawsuit against KBR by 26 Oregon veterans regarding alleged exposure to hexavalent chromium at Qarmat Ali, a KBR facility in Iraq. According to the press release, it was allegedly learned during the litigation that KBR had a form of indemnification clause in its relevant government contracts.