Too Exposed?

First, there's additional complexity to assessing risk in this area compared to a standard commercial line. The diversity of many federal IT contractors' products and services tends to be much broader than those found in the private sector.

Second, products and services also tend to be extremely multifaceted. With such complexities, all parties must be diligent in understanding the nature of this wide spectrum, so that risk can be judged accurately.

The third layer of risk involves national security. Usually, underwriters cannot be fully disclosed on what IT products and services are intended to do for government agencies. It is necessary that agents, brokers and underwriters have specialized knowledge, as well as the ability to ask the right questions, so that risk assessment information can still be gathered without compromising the project's classified status.

Government contractors must meet all the conditions in the voluminous contractual protocol called the Federal Acquisition Regulation (FAR). All federal executive agencies use that as the primary guideline in acquiring supplies and services with appropriated funds.

Those IT contractors who work for the Department of Defense must also pass muster with the Defense Contract Audit Agency. Since Congress requires all appropriated expenditures to be reported, the method in which these expenditures are accounted for can represent a significant burden on the businesses involved.

How can a contractor protect itself from so much exposure? Learn more online: "All About the Military Contractor Defense."

James West is senior vice president of Chubb & Son, and manager of Chubb's Information and Network Technology segment.