Allocation of Risk/Liability
Elements of Program Success
Yours, Mine and Ours
Rochelle L. Cooper
Deputy General Counsel
NCMA 2006 Winter Educational Conference
©Copyright 2006 United Space Alliance, LLC
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 2
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 3
Categories of Potential Liability
Example: 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 4
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)
Page 5
Extracted from Marsh & McLennan Companies Copyrighted Material with Permission
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
 85-804 Indemnification
Anti-Terrorism
 85-804 Indemnification
 The Support Anti-Terrorism by Fostering Effective Technologies
Act of 2002 (SAFETY Act)
Page 6
Extracted from Marsh & McLennan Companies Copyrighted Material with Permission
Risk/Liability Mitigation Framework
Federal Acquisition Regulation (FAR)
Provisions
Other Contractual Provisions
Insurance
Page 7
FAR (FAR, NFS, DFARS)
 Insurance
 Government Property – Risk
of Loss/Damage
 Limitation of Liability
 Indemnification
 Cross-Waiver of Liability
 Special Liability Protections
(Program/Product Specific)
Federal Acquisition Regulation (FAR) Provisions
Page 8
Other Contractual Provisions
 Indemnity
 Limitation of Liability
 Governing Law
Other Contractual Provisions
Page 9
Insurance
 Types
 Additional Insured
 Certificate of Insurance
Insurance
Page 10
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 11
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 12
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 13
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.
Page 14
FAR 52.250-1 – Indemnification Under Public Law 85-804
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 15
FAR 52.250-1 – Indemnification Under Public Law 85-804
• 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 16
Public Law 85-804
Government
Indemnification
$x
Your Insurance
Limit
0
Page 17
Extracted from Marsh & McLennan Companies Copyrighted Material with Permission
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 18
Public Law 85-804
Executive 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 19
Commercial Launches
Commercial 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 20
Extracted from Marsh & McLennan Companies Copyrighted Material with Permission
Commercial Launches
Commercial 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 21
Extracted from Marsh & McLennan Companies Copyrighted Material with Permission
Commercial Launches
Commercial Space Launch Act (CSLA) (Continued)
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
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Extracted from Marsh & McLennan Companies Copyrighted Material with Permission
Commercial Launches
Commercial Space Launch Act (CSLA) (Continued)
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 23
Extracted from Marsh & McLennan Companies Copyrighted Material with Permission
Commercial Launches
Commercial Space Launch Act (CSLA) (Continued)
Commercial
Insurance
$1.664 billion
$1.5 Billion
Government
Indemnification
Ex. $164 million
Single Launch
Liability Policy
0
Page 24
Extracted from Marsh & McLennan Companies Copyrighted Material with Permission
Commercial Launches
Commercial 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 25
Extracted from Marsh & McLennan Companies Copyrighted Material with Permission
Commercial Launches
Commercial 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 26
Extracted from Marsh & McLennan Companies Copyrighted Material with Permission
Commercial Launches
NASA 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 27
Extracted from Marsh & McLennan Companies Copyrighted Material with Permission
Commercial Launches
NASA Act Chart
$1.7 Billion
$1.5 Billion
Government
Indemnification
Ex. $200 Million
Single Commercial
Policy
0
Page 28
Extracted from Marsh & McLennan Companies Copyrighted Material with Permission
Special Liability Protection
Example: 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 AntiTerrorism 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
Page 29
Special Liability Protection
Example: The SAFETY Act (Continued)
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
Page 30
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 31
Federal Acquisition Regulation (FAR)
Provisions (Continued)
52.228-10
52.237-7
52.245-2
52.245-3
52.245-4
52.245-5
52.245-6
Vehicular and General Public Liability Insurance (Apr
1984)
Indemnification and Medical Liability Insurance (Jan
1997)
Government Property (Fixed-Price Contracts) (May
2004)
Identification of Government-Furnished Property (Apr
1984)
Government-Furnished Property (Short Form) (June
2003)
Government Property (Cost-Reimbursement, Timeand-Material, or Labor-Hour Contracts) (May 2004)
Liability for Government Property (Demolition Services
Contracts (Apr 1984)
Page 32
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 33
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 34
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)
Page 35
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 36
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 37
52.245-5 Government Property (Cost-Reimbursement, Timeand-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.
Page 38
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.
Page 39
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 40
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 41
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 42
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 43
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 44
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 45
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 46
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 47
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 48
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 49
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 50
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 51
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 52
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 53
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 54
Indemnity - Examples
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.
Page 55
Indemnity - Examples
 . . . 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.
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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
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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-andMaterial, 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
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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
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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
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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".
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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.
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Certificate of Insurance
Page 67
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
Page 71
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!
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