The invention is directed at a drill tool assembly including a holder having a shank and head portion and having a axial centerline or rotational axis on which said holder is rotated in use. The head portion includes a holder slot at least over a central portion of the head, with the slot being oriented perpendicularly to the axial centerline of the holder. The holder slot also includes a locating boss extending upwardly from the bottom of the slot, which includes first and second surfaces, with at least one of the surfaces being located in a predetermined position with respect to the axial centerline of the holder, and substantially parallel to this centerline. A drill insert having first and second cutting surfaces is selectively positioned within the holder slot, and includes a locating slot adapted to be positioned in a predetermined orientation relative to the boss provided in the holder slot. Both the position of the boss and corresponding position of the drill insert and locating slot with respect to the boss are controlled by orienting the drill insert in a predetermined manner with respect to the holder to minimize offset errors in these relative positions. In the preferred embodiment, the holder and the locating dowel or boss share a common rotational axis and the drill insert is installed in the holder in a single orientation and configured so that when it is cammed into place by an offset retaining screw, the bit indexes so that the centerline or rotational axis of the bit, locating boss and holder are substantially co-linear.