NCMA 2006 Winter Educational Conference ©Copyright 2006 United Space Alliance, LLC Allocation of Risk/Liability Elements of Program Success Yours, Mine

NCMA 2006 Winter Educational Conference

©Copyright 2006 United Space Alliance, LLC

Allocation of Risk/Liability

Elements of Program Success

Yours, Mine and Ours

Rochelle L. CooperDeputy General Counsel

Page 2

What is Program Success?

Encourage Participation/Development by Contractors

Financial Success

Avoid “hidden costs” – Every risk has an associated price (visible or hidden)

Avoid Claims, Demands, Losses, and Litigation

Time

Money

Negative Publicity

Avoid Uncertainty

Win-Win-Win

Government – Prime – Subcontractor

Positive impact on overall contract performance and relationship

Page 3

Risk/Liability Framework

Portfolio of Contracts Liability Matrix

Customer

Contract Number

Period of Performance

Contract Type

Contract Value

Contract Scope

Analyze Potential Risks/Liabilities

Liability Mitigation

Choice of Law, Forum, and Disputes Provisions

Notification Requirements

Page 4

Categories of Potential LiabilityExample: Space Shuttle Columbia

Government Property

Crew’s estate, survivors, or subrogees

Other Third Party Liability

Injury/Death

Property Damage/Loss

Economic Loss

Example: Payloads

Example: Environmental

Employees

Subcontractors

Contractual liability

Breach of contract claims

Applicability of “Government Contractor Defense”

Page 5

Risk Templates Driven by USG Agencies

Examples:

Commercial Launches

Commercial Space Launch Act – Congress, FAA

Commercial Space Operations Support Agreement – DoD, USAF

Civil Launches

NASA

Military Launches

DoD

Anti-Terrorism Technologies

Department of Homeland Security (DHS)

Extracted from Marsh & McLennan Companies Copyrighted Material with Permission

Page 6

Unique Risk Environments

Commercial Launches

Commercial Space Launch Act (CSLA)

Commercial Space Operations Support Agreement (CSOSA)

Civil Launches (NASA)

85-804 Indemnification

NASA Act

Military Launches


Anti-Terrorism


The Support Anti-Terrorism by Fostering Effective Technologies Act of 2002 (SAFETY Act)


Page 7

Risk/Liability Mitigation Framework

Federal Acquisition Regulation (FAR)Provisions

Other Contractual Provisions

Insurance

Page 8

FAR (FAR, NFS, DFARS)

Federal Acquisition Regulation (FAR) Provisions

Insurance

Government Property – Risk of Loss/Damage

Limitation of Liability

Indemnification

Cross-Waiver of Liability

Special Liability Protections (Program/Product Specific)

Page 9



Indemnity

Limitation of Liability

Governing Law

Page 10

Insurance

Insurance

Types

Additional Insured

Certificate of Insurance

Page 11

Indemnification / Indemnify

Indemnification – The action of compensating for loss or damage sustained. The compensation so made.

Indemnify – To reimburse (another) for a loss suffered because of a third party’s or one’s own act or default. To promise to reimburse (another) for such a loss. To give (another) security against such a loss.

Page 12

Indemnification Under Public Law 85-804

Anti-Deficiency Act – generally, all Government agencies are prohibited from agreeing to indemnify their contractors

Exception to prohibition must be found in specific congressional authorization

Principal congressionally authorized exception to prohibition found in Public Law 85-804

President can authorize any department or agency of the Government performing “national defense” functions to agree to indemnify contractors against losses due to “unusually hazardous or nuclear” risks

Page 13

Public Law 85-804 (Continued)

Roots in World War II Era

Traditionally indemnification authorized for:

Nuclear power

Highly volatile fuels for missiles

DoD launches, NASA launches with direct defense purposes

Homeland defense/anti-terrorism (with restrictions)

Subcontractors must request 85-804 indemnification and work with contractor in completing risk matrix

Page 14

FAR 52.250-1 – Indemnification Under Public Law 85-804

Government shall, subject to the limitations contained in the other paragraphs of this clause, indemnify the Contractor against:

(1) Claims (including reasonable expenses of litigation or settlement) by third persons (including employees of the Contractor) for death; personal injury; or loss of, damage to, or loss of use of property;

(2) Loss of, damage to, or loss of use of Contractor property, excluding loss of profit; and

(3) Loss of, damage to, or loss of use of Government property, excluding loss of profit.

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Limitations

This indemnification applies only to the extent that the claim, loss, or damage

(1) arises out of or results from a risk defined in this contract as unusually hazardous or nuclear, and

(2) is not compensated for by insurance or otherwise.

Any such claim, loss, or damage, to the extent that it is within the deductible amounts of the Contractor's insurance, is not covered under this clause.

When the claim, loss, or damage is caused by willful misconduct or lack of good faith on the part of any of the Contractor's principal officials, the Contractor shall not be indemnified for --

(1) Government claims against the Contractor (other than those arising through subrogation); or

(2) Loss or damage affecting the Contractor's property


Page 16

• With the Contracting Officer's prior written approval, the Contractor may, in any subcontract under this contract, indemnify the subcontractor against any risk defined in this contract as unusually hazardous.

• The Government shall indemnify the Contractor against liability to subcontractors incurred under subcontract provisions approved by the Contracting Officer.


Page 17

Public Law 85-804

Your InsuranceLimit

GovernmentIndemnification

0

$x


Page 18

Example: Indemnification Under Public Law 85-804 Space Shuttle Activities

US Government indemnifies USA’s Space Shuttle activities against third party injury, death or property damage claims arising from:

Burning, explosion or detonation shuttle flight elements, components or ground equipment

Uncontrolled or accidental release of spills of hazardous chemicals or gases

Landfall of Space Transportation System elements, components or fragments

During the flight risk period, that is, shuttle rollout to launch pad, launch and return to Kennedy Space Center; and

During ground operations at Kennedy Space Center and Cape Canaveral Air Force station in Florida

Indemnification does not apply to International Space Station (ISS) operations as the ISS Program is not designated as facilitating US National Defense

Page 19

Public Law 85-804Executive Order 13286

Executive Order 13286 – Authority extended to Department of Homeland Security

But restrictions on ability of DHS and other agencies to exercise authority in connection with anti-terrorism technologies

Agencies prohibited from using P.L. 85-804 authority in connection with goods or services the Secretary of Homeland Security either has, or could, designate as a qualified anti-terrorism technology under The SAFETY Act

Two Exceptions:

DoD – The Secretary of Defense determines exercise of P.L. 85-804 is “necessary for the timely and effective conduct of United States military or intelligence activities”

Other agencies:

1. The Secretary of Homeland Security has advised whether the use of the SAFETY Act would be “appropriate”, and

2. The Director of the Office of Management and Budget approves the use of Public Law 85-804

Page 20

Commercial LaunchesCommercial Space Launch Act (CSLA)

United Nations Treaties (1967, 1972)

Hold Nation States responsible for national activities in Outer Space

Commercial Space Launch Act (1984, 1988, 1994)

Sets specific requirements (including insurance and financial responsibility) necessary to obtain a launch license. Launch Licensees are Lockheed Martin, Boeing and Orbital


Page 21

Commercial LaunchesCommercial Space Launch Act (CSLA) (Continued)

One Launch Liability policy covers the launch participants

Reciprocal waiver of claims

Required insurance set by a known formula

Required insurance is statutorily capped

Government endeavors to pay claims above required insurance and up to $1.5 billion

Insurance would apply after Government “undertaking” is exhausted


Page 22


Who is insured under a Launch Licensee’s Launch Liability insurance policy?

Launch Licensee

The Government

Executive agencies, contractors, and subcontractors of the Government

Contractors, subcontractors and customers of Launch Licensee

Contractors and subcontractors of the customer

Customer related entities with financial interest

Customer related foreign governments as applicable


Page 23


Liability insurance and financial responsibility requirements

Licensee shall obtain liability insurance for the maximum probable loss (MPL) for:

–Third party bodily injury or property damage

–Damage to Government property

Policy limits for MPL shall not exceed:

–$500,000,000 for third party bodily injury and property damage

–$100,000,000 for damage to government property

Five-year extension to December 31, 2009, granted November 30, 2004

Industry study mandated by Congress


Page 24


Single LaunchLiability Policy

$1.5 BillionGovernment

Indemnification

Commercial Insurance

0

Ex. $164 million

$1.664 billion


Page 25

Commercial LaunchesCommercial Space Operations Support Agreement (CSOSA)

Contract required for USAF/U.S. Government support services for commercial launches on U.S. Government launch sites.

Governs all use and support from first entrance onto launch complex until beginning of “commercial launch activities” as defined and governed by CSLA.

Insurance requirements

Hold harmless and indemnity flows one way from User and customers to U.S. Government.

– Third Party Liability Indemnity for Government caused claims is capped to required insurance.

– Damage to Government property – repair/replace.


Page 26

Commercial LaunchesCommercial Space Operations Support Agreement (CSOSA)

Insurance requirements (Continued)

Requires single third-party liability insurance policy to be provided by the User for stated limit

– Limit based on available insurance (based on CSLA MPL limit)

– U.S. Government additional insured

– Covers Customers and contractors at ever tier

– Dovetails with CSLA required insurance cross waivers

Requires performance bond

Requires environmental fines and penalties indemnity


Page 27

Commercial LaunchesNASA Act

Replaces PL 85-804 indemnification for most civil launches.

NASA’s reimbursement of claims occurs after the “insurance required by the contract” is exhausted and contractor pays claim.

NASA Indemnification is capped to $1.5 billion excess of required single policy limit provided by Prime.

Risk / Liability limits are in the Prime’s contract with NASA not to exceed $500 million.


Page 28

Commercial LaunchesNASA Act Chart

Single CommercialPolicy

$1.5 BillionGovernment

Indemnification

0

Ex. $200 Million

$1.7 Billion


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Special Liability ProtectionExample: The SAFETY Act

Makes several forms of third-party liability protection available to companies that provide goods or services to facilitate the defense against, or recovery from terrorism

Limits liability of companies that sell “Qualified Anti-Terrorism Technologies” (QATTs)

Specialized Limitations

Small Pox Vaccines

Aviation Screening Services

Complexity of liability regime under the Act and interaction with the Government’s authority under Public Law 85-804

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Request by Seller

Secretary of Homeland Security determines whether products or services qualify

If product or service meets established criteria, Secretary issues Certificate of Conformance and places product or service on the approved product list

Three forms of liability protection:

1. Exclusive federal jurisdiction over covered lawsuits, with limitations on the types of damages recoverable

2. A rebuttable presumption that the Seller is shielded by the “Government contractor” defense

3. A cap on the Seller’s liability in an amount equal to its insurance coverage

Special Liability ProtectionExample: The SAFETY Act (Continued)

Page 31

Federal Acquisition Regulation (FAR) Provisions

52.228-3 Worker’s Compensation Insurance (Defense Base Act) (Apr 1984)

52.228-4 Worker’s Compensation and War-Hazard Insurance Overseas (Apr 1984)

52.228-5 Insurance – Work on Government Installation (Jan 1997)

52.228-7 Insurance-Liability to Third Persons (Mar 1996)

52.228-8 Liability and Insurance – Leased Motor Vehicles (May 1999)

52.228-9 Cargo Insurance (May 1999)

Page 32

Federal Acquisition Regulation (FAR) Provisions (Continued)52.228-10 Vehicular and General Public Liability Insurance (Apr

1984)

52.237-7 Indemnification and Medical Liability Insurance (Jan 1997)

52.245-2 Government Property (Fixed-Price Contracts) (May 2004)

52.245-3 Identification of Government-Furnished Property (Apr 1984)

52.245-4 Government-Furnished Property (Short Form) (June 2003)

52.245-5 Government Property (Cost-Reimbursement, Time-and-Material, or Labor-Hour Contracts) (May 2004)

52.245-6 Liability for Government Property (Demolition Services Contracts (Apr 1984)

Page 33

Federal Acquisition Regulation (FAR) Provisions (Continued)52.245-7 Government Property (Consolidated

Facilities) (March 1996)(DEV PIC 95-8) (Jul 1995)

52.245-8 Liability for the Facilities (Jan 1997)

52.246-23 Limitation of Liability (Apr 1984)

52.246-24 Limitation of Liability-High Value Items (Feb 1997)

52.246-25 Limitation of Liability-Services (Apr 1984)

52.250-1 Indemnification Under Public Law 85-804 (Apr 1984) Alternate I (Apr 1984)

Page 34

NASA FAR Supplement (NFS)

1852.228-70 Aircraft Ground and Flight Risk (Oct 1996)

1852.228-71 Aircraft Flight Risks (Dec 1988)

1852.228-72 Cross-Waiver of Liability for Space Shuttle Services (Dec 1994)

1852.228-73 Bid Bond (Oct 1988)

1852.228-75 Minimum Insurance Coverage (Oct 1988)

1852.228-76 Cross-Waiver of Liability for Space Station Activities (Dec 1994)

Page 35

NASA FAR Supplement (NFS) (Continued)

1852.228-78 Cross-Waiver of Liability for NASA Expendable Launch Vehicle Launches (Sep 1993)

1852.228-80 Insurance – Immunity From Tort Liability (Sep 2000)

1852.228-81 Insurance – Partial Immunity From Tort Liability (Sep 2000)

1852.228-82 Insurance – Total Immunity From Tort Liability (Sep 2000)

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Defense FAR Supplement (DFARS)

252.217-7012 Liability and Insurance (Aug 2003)

252.228-7000 Reimbursement for War-Hazard Losses (Dec 1991)

252.228-7001 Ground and Flight Risk (Sep 1996)

252-228-7002 Aircraft Flight Risk (Sep 1996)

252-235-7000 Indemnification Under 10 U.S.C. 2354 – Fixed Price (Dec 1991)

252.235-7001 Indemnification Under 10 U.S.C. 2354 – Cost Reimbursement (Dec 1991)

252-247-7007 Liability and Insurance (Dec 1991)

Page 37

52.245-5 Government Property (Cost-Reimbursement, Time-and-Material, or Labor-Hour Contracts) (May 2004)

(g) Limited risk of loss.

(1) The Contractor shall not be liable for loss or destruction of, or damage to, the Government property provided under this contract or for expenses incidental to such loss, destruction, or damage, except as provided in paragraphs (g)(2) and (g)(3) of this clause.

(2) The Contractor shall be responsible for loss or destruction of, or damage to, the Government property provided under this contract (including expenses incidental to such loss, destruction, or damage) –

(i) That results from a risk expressly required to be insured under this contract, but only to the extent of the insurance required to be purchased and maintained or to the extent of insurance actually purchased and maintained, whichever is greater;

Page 38

52.245-5 Government Property (Cost-Reimbursement, Time-and-Material, or Labor-Hour Contracts) (May 2004) (Continued)

(ii) That results from a risk that is in fact covered by insurance or for which the Contractor is otherwise reimbursed, but only to the extent of such insurance or reimbursement;

(iii) For which the Contractor is otherwise responsible under the express terms of this contract;

(iv) That results from willful misconduct or lack of good faith on the part of the Contractor's managerial personnel; or

(v) That results from a failure on the part of the Contractor, due to willful misconduct or lack of good faith on the part of the Contractor's managerial personnel, to establish and administer a program or system for the control, use, protection, preservation, maintenance, and repair of Government property as required by paragraph (e) of this clause.

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52.246-23 Limitation of Liability (Apr 1984)

The Contractor shall not be liable for loss of or damage to property of the Government (excluding the supplies delivered under this contract) that-

(1) Occurs after Government acceptance of the supplies delivered under this contract; and

(2) Results from any defects or deficiencies in the supplies.

Limitations:

The limitation of liability shall not apply when a defect or deficiency in, or the Government's acceptance of, the supplies results from willful misconduct or lack of good faith on the part of any of the Contractor's managerial personnel.

If the Contractor carries insurance covering liability for loss or damage suffered by the Government through purchase or use of the supplies required to be delivered under this contract, the Contractor shall be liable to the Government, to the extent of such insurance, for loss of or damage to property of the Government occurring after Government acceptance of, and resulting from any defects or deficiencies in, the supplies delivered under this contract.

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52.246-25 -- Limitation of Liability - Services (Feb 1997)• Except as provided in the paragraphs below, and except to the extent that the Contractor is

expressly responsible under the contract for deficiencies in the services required to be performed under it (including any materials furnished in conjunction with those services), the Contractor shall not be liable for loss of or damage to property of the Government that

(1) Occurs after Government acceptance of services performed under the contract; and

(2) Results from any defects or deficiencies in the services performed or materials furnished.

• The limitation of liability described above shall not apply when a defect or deficiency in, or the Government's acceptance of, services performed or materials furnished results from willful misconduct or lack of good faith on the part of any of the Contractor's managerial personnel.

• If the Contractor carries insurance covering liability for loss or damage suffered by the Government through purchase or use of the supplies required to be delivered under this contract, the Contractor shall be liable to the Government, to the extent of such insurance, for loss of or damage to property of the Government occurring after Government acceptance of, and resulting from any defects or deficiencies in, the supplies delivered under this contract.

Page 41

Cross-Waiver of Liability for Space Shuttle Services

To apply both the entity causing damage and the entity sustaining damage must be involved in “Protected Space Operations”.

"Protected Space Operations" means all Space Shuttle and payload activities on Earth, in outer space, or in transit between Earth and outer space performed in furtherance of an agreement involving Space Shuttle services or performed under this contract. "Protected Space Operations" excludes activities on Earth which are conducted on return from space to develop further a payload's product or process except when such development is for Space Shuttle-related activities necessary to implement an agreement involving Space Shuttle services or to perform this contract. It includes, but is not limited to:

(i) Research, design, development, test, manufacture, assembly, integration, operation, or use of the Space Shuttle, transfer vehicles, payloads, related support equipment, and facilities and services;

(ii) All activities related to ground support, test, training, simulation, or guidance and control equipment, and related facilities or services.

Page 42

Cross-Waiver of Liability for Space Shuttle Services

"Related entity" means:

(i) A party's Contractors or subcontractors at any tier;(ii) A party's users or customers at any tier; or(iii) A Contractor or subcontractor of a party's user or customer at any tier

Contractor waives all claims against any of the entities or persons listed in (i) through (iii) above based on damage arising out of Protected Space Operations

Waiver applies to any claims for damage, whatever the legal basis for such claims, including but not limited to delict (a term used in civil law countries to denote a class of cases similar to tort) and tort (including negligence of every degree and kind) and contract, against:

(i) Any party other than the Government; (ii) A related entity of any party other than the Government; and (iii) The employees of any of the entities identified in (i) and (ii)

Page 43

Cross-Waiver of Liability for Space Shuttle Services The Contractor agrees to extend the waiver of liability to

subcontractors at any tier by requiring them, by contract or otherwise, to agree to waive all claims against the entities or persons identified in paragraphs (i) - (iii)

This waiver of liability shall not be applicable to:

(i) Claims between any party and its related entities or claims between the Government's related entities (e.g., claims between the Government and the Contractor are included within this exception);

(ii) Claims made by a natural person, his/her estate, survivors, or subrogees for injury or death of such natural person;

(iii) Claims for damage caused by willful misconduct; and

(iv) Intellectual property claims.

Page 44

Contractor/Subcontractor Discussion Points

Government Property Provisions

Fixed Price – Request Alternate 1, Limited Risk of Loss

Both Fixed Price and Cost Reimbursement – need Contracting Officer approval to flow down

Limitation of Liability Provisions

Need Contracting Officer approval to flow down

Public Law 85-804 Indemnification

The Government shall indemnify the Contractor against liability to subcontractors incurred under Public Law 85-804 subcontract provisions approved by the Contracting Officer

Cross-Waiver Provisions

See the exception for “claims between any party and its related entities”. This means that the cross-waiver does not apply with respect to claims between prime contractor and its subcontractors. The liability and risk allocation provisions of each subcontract will determine liability, if any.

Page 45

Request for Limited Risk of Loss (Government Property) Example

<<Subcontractor>> requests <<Prime Contractor>> seek Contracting Officer approval to relieve <<Subcontractor>> from assuming the risk of, and responsibility for, any loss or destruction of, or damage to, the Government property and equipment while in USA’s possession or control, pursuant to paragraph (g)(4) of the reference clause. Approval of the flow down of the limited risk of loss to the <<Name/Identification>> subcontract avoids an unnecessary incurrence of cost and expense to <<Customer>> related to obtaining additional insurance. For your information, a copy of the most recent Government approval of <<Subcontractor>>’s Government Property Control System is provided as the attachment to this letter.

Page 46

Other Contractual Indemnity Provisions

One method of transferring financial risk of loss

Enforceability varies significantly from state to state

Judicial interpretation and enforcement inconsistent

Nature of indemnitee’s conduct

Comparative Fault

Subject Matter of the underlying contract

Generally, provisions are categorized by courts as one of three types:

Broad form

Intermediate form

Limited form

Depends on degree and scope of negligence being indemnified

Many provisions are not easily categorized or mix elements of each “type”

Page 47

Indemnity

Indemnity:

A duty to make good any loss, damage, or liability incurred by another.

The right of an injured party to claim reimbursement for its loss, damage, or liability from a person who has such a duty.

Reimbursement or compensation for loss, damage, or liability in tort; esp., the right of a party who is secondarily liable to recover from the party who is primarily liable for reimbursement of expenditures paid to a third party for injuries resulting from a violation of a common-law duty.

Page 48

Indemnitee / Indemnitor

Indemnitee:

One who receives indemnity from another

Indemnitor:

One who indemnifies another

Comprehensive General-Liability Insurance:

Insurance that broadly covers an insured’s liability exposure, including product liability, contractual liability, and premises liability.

Page 49

Broad Form Indemnity

Indemnitor indemnifies the indemnitee for

Indemnitor’s sole negligence;

Indemnitee’s sole negligence; and,

Joint negligence of indemnitor and indemnitee

Seeks to transfer entire risk of loss to indemnitor, regardless of which party was at fault

Numerous obstacles to enforcement

Enforceability prohibited or severely restricted in many states

Design and construction contracts

Page 50

Intermediate Form Indemnity

Indemnitor indemnifies the indemnitee for indemnitor’s sole negligence and joint negligence of indemnitor and indemnitee

Indemnitor assumes all risk relating to the subject matter, except where injury or damage is caused by indemnitee’s sole negligence

Source of numerous conflicts between indemnitor and indemnitee

Frequently requires indemnitor to provide defense pending ultimate resolution

Page 51

Limited Form (Comparative Fault) Indemnity

Indemnitor and indemnitee hold each other harmless for respective negligence

Provides only limited protection, primarily in “respondeat superior” settings

Will usually be enforced by courts

May actually be less favorable than what jurisdiction provides

Page 52

Practical Considerations for Maximizing Enforceability

Understand subject matter of the contract

Understand the parties’ expectations

Avoid “boilerplate” provisions for use in multiple states

Separate indemnity provisions for different types of activities

Be particularly cautious with construction/design contracts

Establish who controls defense/settlement of claim

Include duty of defense costs

Page 53

Practical Considerations for Maximizing Enforceability (Continued)

Place indemnity provisions and insurance provisions in separate parts of contract

To what extent can fault be transferred

How is intentional misconduct treated?

Can sole negligence be transferred? “Express Negligence Doctrine”

Does the contract state which provision “acts first” indemnification or insurance? Is the indemnification provision intended to be excess to coverage required by the insurance provision?

Make indemnification provision conspicuous

Page 54

Indemnity - Examples

Buyer agrees to defend, indemnify, and hold Seller, its officers, agents and employees harmless from and against any and all liabilities, damages, losses, expenses, claims, actions and judgments, including all costs, and expenses incident thereto, which may be suffered by, accrued against, be charged to or recoverable from Seller, its officers, agents or employees, by reason of loss of or damage to property, or injury to or death of any persons arising out of or in any way connected with the providing of, or the use or implementation of the Goods, Services, or any information provided under this order.

Page 55


Seller hereby indemnifies and holds Buyer, its officers, employees and agents harmless from and against any and all claims, actions or demands against Buyer, its officers, employees and agents, and any and all damages, liabilities, or expenses, including counsel fees, for injury to or death of any person and for loss of or damage to any and all property, arising out of the acts or omissions of Seller under this Order.

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. . . to the extent such damage, loss, cost or expense proximately and solely results from the negligent act or omission or willful misconduct of Seller . .

. . . except for damage caused by the sole negligence of Buyer, its officers, agents and employees . . .

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Indemnity – Examples (“Mutual”)

Prime Contractor and Subcontractor (in this clause individually referred to as “indemnifier”) each assume liability for and hereby agree to indemnify, protect and hold harmless the other party, its agents, successors and assigns from and against all liabilities, obligations, losses, damages, injuries, claims, demands, penalties, actions, costs and expenses, including reasonable attorneys’ fees (hereinafter “claims”), of whatsoever kind and nature arising out of the activities under this Contract to the extent caused by the acts or omissions of the indemnifier. The indemnifier shall retain all rights to claim contribution from the other party or third parties under applicable law, including the Federal Tort Claims Act and State Comparative Fault Statutes.

Page 58

Indemnity – Examples (“Mutual”)

The indemnifier shall have the right to defend any suit, suits or legal proceedings of any kind, including arbitration, brought to enforce such claims. Each party agrees that in any instance where such claims in any way affect the other party’s interests under this Contract or otherwise, indemnifier shall not consummate any settlement without the other party’s prior written consent.

The undertakings set forth above shall not affect each party’s requirement to maintain applicable workers’ compensation and/or employer’s liability insurance under applicable law, nor to create or affect either party’s subrogation rights under workers’ compensation and/or occupational disease or injury laws.

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Limitation of Liability Provisions

Government – Prime

FAR Provisions

Prime – Subcontractor

FAR Provision Flowdown

– Contracting Officer Authorization

Additional Contractual Protection

– Consequential/Incidental Damages

– Dollar Cap

Ensure additional contractual provisions don’t “conflict” with FAR provisions

Page 60

Examples of Limitation of Liability Provisions

In no event shall either party have any liability to the other party for any indirect, special, incidental, consequential, or special damages.

In no event shall either party be liable for indirect, incidental, special, punitive or consequential damages, including damages for loss of profits or revenue, incurred by either party or any third party, whether founded in contract, tort (including negligence) or strict liability or other theory of law, even if the other party or any other person has been advised of the possibility of such damages. For avoidance of doubt, nothing in this provision affects the parties’ respective rights and obligations under NFS 1852.228-72, Cross Waiver of Liability for Space Shuttle Services; 1852.228-76 Cross Waiver of Liability for Space Station Activities; FAR 52.245-5, Government Property (Cost-Reimbursement, Time-and-Material, or Labor-Hour Contracts); FAR 52.246-23, Limitation of Liability; FAR 52.246-24, Limitation of Liability - High Value Items; and FAR 52.246-25, Limitation of Liability – Services, as those provisions are incorporated in this subcontract, or any provisions herein relating to inspection or acceptance of supplies or services.

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Examples of Limitation of Liability Provisions (Continued)

Seller's liability and Buyer's sole and exclusive remedy, whether at law or at equity, shall be limited to monetary damages in the maximum amount of the price allocable in this Contract to any Good or Service alleged to be the cause of any loss or damage to the Buyer whether founded in contract, tort (including negligence) or strict liability arising out of, or resulting from: (a) this Contract or the performance or breach thereof, (b) the design, installation, manufacture, delivery, sale, repair, maintenance, replacement or use of any such Good, or (c) the furnishing of any such Service. In no event shall Seller have any liability for any indirect, special, incidental, consequential, or special damages.

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Insurance – Commercial General Liability

Indemnity provision is only as good as the assets indemnitor has available to satisfy indemnity obligations.

Review financial position of indemnitor

Dunn & Bradstreet Report

Impractical to constantly review

Standard Commercial General Liability (CGL) coverage

Scope of policy coverage should match scope of indemnity provided

Scope of coverage governed by indemnities

Page 63

Examples: Insurance

Casualty

Workers’ Compensation & Employer’s Liability

Comprehensive General Liability

Comprehensive General Liability (USA Leadership Association)

Commercial Automobile Liability & Physical Damage

Casualty Historical Rate Comparison

Umbrella/Excess Liability - Worldwide

Page 64

Examples: Insurance

Foreign Casualty

Automobile Liability

Comprehensive General Liability

Voluntary Workers’ Compensation & Employer’s Liability

Defense Base Act

International Casualty Premium Summary

Property Damage & Business Interruption Program

Marine Summary – Protection & Indemnity

Page 65

Insurance Requirement - Example

Seller shall carry Workers’ Compensation Insurance. Additionally, Seller shall carry Comprehensive General Liability Insurance (including Products, Contractual, and Automobile Liability) in such form as to protect Seller and Buyer, its Advisory Board and members thereof, officers, employees and agents of Buyer as additional insured's from any claims or damages for bodily injury, including death, and any damage to property which may arise from acts or omissions of Seller under this Order. Prior to or simultaneous with the start of any of the services required to be furnished hereunder, Seller shall furnish Buyer with a certificate of insurance evidencing limits not less than $1 million combined single limit per occurrence for bodily injury (including death) and property damage. Additionally, said certificate must contain the following statement: "United Space Alliance, LLC, its Advisory Board and members thereof, officers, employees and agents are additional insured's".

Page 66

Insurance Requirement - Example

(continued)

Such insurance shall be primary and non-contributing to any insurance maintained or obtained by Buyer and shall not be canceled or materially reduced without thirty (30) days prior written notice to Buyer. Seller agrees to waive any rights of subrogation Seller or Seller's insurers may have against Buyer under the applicable Workers’ Compensation law.

Page 67

Certificate of Insurance

Page 68

Additional Insured

Liability protection if contractor’s employee is injured working on customer’s premises

Seek to be named as additional insured under indemnitor’s policies

Direct insurance rights against insurer

Rights exist independent of any indemnity obligations

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Interplay of Indemnity, Insurance, Applicable Law, and Existing Contracts

Applicable law will be critical

Multiple laws may be potentially applicable

Type of contract may determine risk and enforceability

Protection available in contract terms and conditions determines flexibility

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Applicable Law (Example)

This order shall be interpreted in accordance with, and the construction thereof shall be governed by, the laws of the State of Florida, excluding its conflict of law provisions, except that any provision in this Contract that is i) incorporated in full text or by reference from the Federal Acquisition Regulations (FAR) or (ii) incorporated in full text or by reference from any agency regulation that implements or supplements the FAR or (iii) that is substantially based on any such agency regulation or FAR provision, shall be construed and interpreted according to the federal common law of government contracts as enunciated and applied by federal judicial bodies, boards of contracts appeals, and quasi-judicial agencies of the federal government. The parties agree that the United Nations Convention on Contracts for the International Sale of goods shall not apply.

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Notification Requirements

Make all required notifications to Customer and Insurance Carriers

Examples:

FAR Clauses• 52.228.7, Insurance, Liability to Third persons, Paragraph (g) (1)

– Immediately notify the Contracting Officer if any suit or action is filed or any claim is made against the Contractor, the cost and expense of which may be reimbursable to the Contractor under this contract, and the risk of which is then uninsured or is insured for less than the amount claimed

• 52.245-5 Government Property, paragraph (g) (5)– File Property Loss, Damage, Destruction (PLDD) Reports

within 30 days

• 52.250-1, Indemnification, paragraph (g)– Promptly notify the Contracting Officer of any claim or action

against, or any loss by, the Contractor or any subcontractors that may reasonably be expected to involve indemnification under this clause

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Conclusion

Understand big picture

Understand details

Identify and evaluate specific risks

Use a portfolio of contracts liability matrix

Understand contract terms and conditions

Determine your insurance needs

Stay alert to changes in the law

Make sure you have a whole liability/risk pie with good filling!

Documents

NCMA 2006 Winter Educational Conference ©Copyright 2006 United Space Alliance, LLC Allocation of Risk/Liability Elements of Program Success Yours, Mine