reform of the general clauses and conditions for esa...

ESA UNCLASSIFIED – For Official Use

Reform of the General Clauses and Conditions for ESA Contracts

Gunilla Stjernevi Head of the Office for Contractual Rules and Procedures

07/02/2011

GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 2


Content of Presentation

Major changes in the new GCC

Liability

Warranty

Customer Furnished Items / Items made available

Key Personnel

Import/Export Licences

Force Majeure

Termination

Penalties

Changes


Liability



Liability I

Situation under the old GCC:

Fault based liability scheme settled in accordance with the applicable national law (unlimited).

Industry requested to introduce caps in view of the level of their financial exposure when contracting with ESA.

Industry’s exposure used to be less since integration was done by ESA or under separate contract.

Considerations:

Varying ad hoc solutions were applied in contracts which diminished predictability.

Industry suggested to introduce a cross-waiver of liability.



Liability II (Clause 18)

Solution provided by the new GCC:

A cross-waiver of liability has been introduced.

Gross-negligence and wilful misconduct are excluded from the cross-waiver.

The Contractor is now only liable for damage to his own people and goods and therefore has a good overview of the extent of his liability irrespectively of fault/negligence of the other party.

Deliverables are excluded from the cross-waiver, the Contractor’s liability for those is capped at the contract price.

CFIs and Items made available are excluded from the cross- waiver, the Contractor’s liability is capped at the value agreed in the contract.



Liability III – Content of cross- waiver (Clause 18)

The parties shall have no claim and no recourse against each other and against the other party’s sub-contractors, including the Agency’s consultants and/or agents involved in the execution of the contract:

for injuries to its employees (staff), including death, sustained by virtue of their involvement in the execution of the contract.

for damages to goods owned by the party (excluding items covered by clauses 11 and 12 above and deliverable(s)), if the occurred damage arises from the execution of the contract.



Liability IV – Content of cross-waiver (Clause 18)

Excluded are:

Claims arising from the ESA test facility

Claims by third parties

Claims based on gross-negligence and wilful misconduct

Claims related to damage to the deliverables and CFIs/ Items made available

The parties shall obtain a waiver of subrogation rights by their respective insurers.



Liability V - Definition of “subrogation”

Meaning of “subrogation” as applied by ESA in its GCC:

The general definition of subrogation is the substitution of one person in place of another with respect to any lawful claim or right. That means that Party A who substitutes Party B succeeds to the rights of Party A in relation to the claim or right.

In relation to insurance matters, subrogation is a right given to the insurer who has paid a loss, to be put in the place of the insured so that he can take advantage of any means available to the insured, to recover from the party who caused the loss.



Liability VI - Insurance Certificates (Clause 18)

Why do we need certificates?

Diversity of legal orders

Inability to verify the extent of the subrogation rights in each party’s insurance policy



Liability VII - Insurance Certificates (Clause 18)

Content of certificates

Insurance company details

Policy title and number

Statement to the effect that the insurance company waives its rights of subrogation against the Agency and its agents/consultants and their respective insurers on a reciprocal basis either in the frame of the contract or in general.



Liability VIII – Hold Harmless Agreement (Clause 18)

Cross Waiver

Hold Harmless

Waiver of subrogation

right

Waiver of subrogation

right



Liability IX – Hold Harmless Agreement II (Clause 18)

When does the Hold Harmless Clause take effect?

No flow-down of the cross waiver

The contracting party cannot obtain a waiver of subrogation rights by its insurer

The contracting party is not insured

The contracting party is a self insured body

What is the effect of the Hold Harmless Clause?

It introduces the strict liability of the party to indemnify the other party for any loss irrespective of the other party’s fault/negligence.



Liability X – Consequential Damage (Clause 19)

Exclusion of consequential damage is given via a non- exhaustive list. This only applies to contractual claims and it has no influence on third party claims (eg. Infringements of IPR of third parties)



Liability XI – Liability after acceptance (Clause 20)

Remaining liabilities after acceptance:

Damages to ESA or third party arising from gross negligence or wilful misconduct

Product liability

Breach of confidentiality

Infringements of third party rights

(Warranty)


Warranty



Warranty I


The warranty period was one year from delivery.

No distinction was made between flight and non-flight items.

No detail of content of warranty was given.

Considerations:

Driven by EU law the national legal systems of the ESA Member States have changed their approach to warranty over the last years. ESA wanted to bring its provisions into coherence with these new approaches.

Previously ESA did the integration itself, nowadays the integration is part of the Contractor’s tasks. This imposes different requirements for warranty than the delivery of individual parts only. Therefore ESA wanted to adapt it’s provisions to the needs of its business as it is done today.

Unequal treatment of Contractors due to ad hoc solutions.



Warranty II (Clause 22)


Distinction between flight and non-flight items.

For all procurements:

Deliverable flight items:

• At least one year from acceptance or until lift-off - whichever is earlier.

Deliverable non-flight items:

• At least one year from acceptance.

Post-launch warranty is regulated in the contract on a case by case basis.


Customer Furnished Items / Items made Available



Customer Furnished Items / Items made available I


Clauses 8 and 10 covered all kinds of items that were provided by the Agency. There was no adequate provision for CFIs and ad hoc solutions had to be introduced on a case by case basis. Nothing covered the situation where an item would be under the ownership of a third party.

Considerations:

The clause originated from a time when the integration was done by ESA. Nowadays items are provided by ESA that need to be integrated by the Contractor. Those items often belong to a third party and can be of very high value.



Customer Furnished Items / Items made available II (Clause 11, 12)


Clause 11 deals with items that are imposed on the Contractor by ESA for the performance of the contract and are typically to be integrated in the deliverables (CFIs).

A typical example would be a payload.

Clause 12 deals with items that are made available by the Agency to the Contractor, leaving it up to the Contractor to decide whether or not he wants to use them (Items made available).

A typical example would be a test bench that the Contractor can either use or rent or build himself.



Customer Furnished Items / Items made available III (Clause 11, 12)

For clause 11 items, the Agency has the undertaking to provide these items timely and in conformance with the contractual requirements. The Contractor has to perform an inspection in accordance with a hand-over procedure.

For clause 12 items, there is no such undertaking for the Agency. ESA only has to make the items available on time but has no responsibility towards their suitability.



Customer Furnished Items / Items made available IV (Clause 11, 12)

A clause 11 item can be rejected by the Contractor due to its non-conformance.

There is no right to reject a clause 12 item for the Contractor as it is left to his discretion to decide whether to use the item or not.

The Contractor is obliged to obtain insurance for a clause 11 item.

However, the Contractor will not be held liable in case a loss or damage is caused by events excluded from the insurance and listed in Annex V of the GCC.

There is no insurance obligation on the Contractor for a clause 12 item, but the Contractor is liable for any damage to the item up to its agreed value.



Customer Furnished Items / Items made available V (Clause 11, 12)

The Contractor’s liability is capped for clause 11 items as well as clause 12 items at the value of the item agreed in the contract.

A clause 11 item typically belongs to either a third party or the Agency. Therefore the ownership remains with those unless agreed otherwise.

A clause 12 item typically belongs to the Agency. Therefore the ownership remains with the Agency unless agreed otherwise.


Key Personnel



Key Personnel I


The old GCC did not contain a provision on key personnel.

Nearly every contract placed by the Agency did contain such a provision though.

The provisions differed depending on the country in which the contract was placed

Considerations:

The fact that nearly every contract placed by the Agency contained a clause on key personnel showed a strong need for such provisions.

Instead of negotiating key personnel clauses for every contract individually, it has been decided to discuss the subject once with Eurospace and to introduce the agreed provisions via the GCC to future contracts.

This way the provisions have been brought into coherence with the laws of the Member States, which will guarantee equal treatment.



Key Personnel II (Clause 9)


In case of change or replacement of key personnel, notification needs to be submitted to the Agency. No approval by the Agency is required.

Linked to the performance of the contract the Agency may request the replacement of key personnel. The Contractor shall remedy the situation at hand including if necessary the replacement of the key personnel (procedure laid down in 9.2).

The Contractor needs to ensure that the key personnel he assigns to an ESA contract are not subject to export control restrictions (e.g. US citizens who are not permitted to be employed in Europe without a Technical Assistance Agreement (TAA)).


Import / Export Licences



Import/Export Licences I


There was no specific clause in the old GCC.

Considerations:

Dual Use items are used in the frame of ESA contracts. National export control regulations associated to these items, may restrict deliveries of items among the members of an industrial team. This caused delays and higher costs.



Import/Export Licences II (Clause 15.3)


Introduction of the following provisions:

Clause 15.3.1.:

Obligation of the Prime Contractor for timely acquisition of all import/export licences and authorisations related to the deliverable items (Obligation of results).



Import/Export Licences III (Clause 15.3)

Clause 15.3.2. :

Obligation of the Prime Contractor for timely conformance to the procedure (no obligation for acquisition of the licence):

Contract performance dependent on non-European source agreed in the contract.

Unforeseeable change in export control legislation or application.

Denial or revocation of export control licenses/authorisations for reasons other than the Contractor’s failure to comply with the conditions of the license/authorisation.



Import/Export Licences IV (Clause 15.3)

Non-acquisition of the license/authorisation in the case of Clause 15.3.2 will have the consequence of Force Majeure as regulated in the new GCC (every party bears its own costs).

Clause 15.3.5.:

Mandatory flow-down to Sub-contractors.


Force Majeure



Force Majeure I


The issue of Force Majeure was regulated by the applicable law.

The only consequence of a Force Majeure event, regulated by the GCC, was an extension of the time limit.

Considerations:

In view of the various approaches foreseen in national laws, there was a need to introduce a definition and to regulate the consequences of Force Majeure in the ESA GCC.



Force Majeure II (Clause 14)


The new GCC define what is to be understood as a Force Majeure event and describe the procedure which needs to be followed by the parties in such an event.

Consequences of Force Majeure:

The Parties are excused from the performance of their obligations under the contract from the time the Force Majeure event occurred evidenced as required in the GCC.

Each party bears its own cost incurred due to the Force Majeure event.

The Agency reserves the right either to terminate the contract or re-negotiate its terms with the Contractor.


Termination



Termination I


Three kinds of contract termination:

Without fault of the Contractor

With fault of the Contractor:• No liability cap• No regulation for achieved milestones was

foreseen

In special cases

Considerations:

The termination for fault of the Contractor was found difficult to implement.

Industry asked for a liability cap for termination for fault.

There was no termination right due to Force Majeure.



Termination II (Clause 32, 33)


The Agency’s termination right for fault of the Contractor is linked to the performance of the contract and is not linked to the programme in general.

In the frame of a firm fixed price contract the Contractor keeps the amounts already paid for achieved milestones, if any, except for advance payments.

The overall liability of the Contractor in case of termination for fault does not exceed the contract price (except for gross negligence and wilful misconduct).

________________

The right of termination due to Force Majeure has been introduced.


Penalties



Penalties I


Penalties were only foreseen for late delivery.

Considerations:

Nowadays more contracts are placed in which the quality of performance is more crucial than the timely delivery.

The penalties proofed to be an ineffective tool to ensure timely delivery.



Penalties II (Clause 17)


The principle of performance related penalties has been introduced.

The principle of an incentive scheme in connection with a penalty scheme has been introduced.


Changes



Changes I


The old GCC only stated general high level provisions that did not provide a clear procedure on the implementation of a contract change.

Considerations:

Over the time there have been a lot of discussions between ESA and industry about which party should bear the costs of a change to a contract.

The details on how a change is introduced had not been formalised which lead to different approaches to the matter within the Agency.

In practice a system was developed that distinguished between Class A and Class B changes.



Changes II (Clause 13)


A clear definition of Class A and Class B changes has been introduced to the GCC.

Class A Changes are changes which result from:

a change to the requirements covered by the contract

failure by the Agency to execute one of its undertakings as defined in the contract.

The agreed price of Class A changes, if any, shall be borne by the Agency.



Changes III (Clause 13)

Class B Changes are all other changes.

The cost for Class B changes, if any, shall be borne by the Contractor.

The Contractor shall also be responsible for any consequences such Class B changes may have on time-limits and/or on other terms of the contract.



Changes IV (Clause 13)

Clause 13.3 describes the CCN procedure initiated by the Agency up to the signature of the CCN.

Clause 13.4 describes the CCN procedure initiated by the Contractor up to the signature of the CCN.

A procedure under exceptional circumstances has been introduced that allows the Agency to introduce urgent changes via an ATP.



Questions

Any questions you may have please submit to this email address:

[email protected]

We will gather the questions, draft answers and publish them as a Q & A document on EMITS.

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