This article is written by Arun Nair, pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho. The article has been edited by Ruchika Mohapatra (Associate, LawSikho) and Dipshi Swara (Senior Associate, LawSikho).
Many United States companies worked closely with NASA to build the Apollo 11 spacecraft that took the first set of humans to the moon’s surface. NASA’s scientists and engineers planned the mission and identified the technology needed to accomplish it and then worked with the most advanced technology-rich companies’ designs to produce space crafts, rockets, capsules, landers, suits, and rovers.
No doubt that space missions are big government initiatives, but the private sector players are an essential part of it. For the past couple of decades now, NASA has handed over more work directly to private firms. For instance, rather than doing things in-house, NASA effectively tells various actors in the relevant domain to design a new space vehicle and accepts proposals from them. Once a proposal gets accepted, NASA enters into a written agreement stating the legal terms and conditions.
The aim of this article is to detail the provisions to be included while drafting a spacecraft design contract that will ultimately provide clarity and inform the ways in which parties can protect their interests during the job.
National Aeronautics and Space Administration (NASA)
NASA is a United States governmental agency set up in the year 1958 and headquartered in Washington D.C having more than 17,000 workforces, primarily to oversee, research and develop science and technology related to air and space exploration. Their program involves among other activities – human spaceflight, robotic space probes, developing and testing cutting edge aircraft.
Their mission is to increase the understanding of the universe through innovation and a sustainable program of exploration with commercial and international partners to enable expansion across the solar system and bring new knowledge and opportunities back to Earth.
Blue Origin is an American, privately funded, aerospace manufacturer and sub-orbital spaceflight services company founded in 2000 by Jeff Bezos (Executive Chairman of Amazon Inc.). It is headquartered in Washington and aims to make access to space cheaper and more reliable through reusable launch vehicles.
Blue Origin was founded with the vision of enabling a future where there will be exploration and expansion of humanity into space to preserve Earth. Therefore, Blue Origins is working on this to serve the needs of all civil, commercial and defence customers.
The collaboration between NASA and Blue Origin
To achieve its objectives, NASA has the mandate to work with any entity or partner by way of Space Act Agreements (SAA) as defined in the National Aeronautics and Space Act of 1958. In the performance of its functions, NASA can enter and perform such contracts, leases, agreements, or other transactions necessary to fulfil its goals.
The SAA majorly can be of four types:
- Reimbursable Agreement: wherein NASA’s costs linked with the project are reimbursed by the agreement partner.
- Non-Reimbursable Agreement: where each partner bears the cost of its participation in the agreement and no funds are exchanged.
- Funded Agreement: wherein funds are transferred to domestic agreement partners to accomplish a mission.
- International Agreement: wherein the agreement partner is a foreign entity. Such an agreement can be reimbursable or non-reimbursable.
Blue Origin has contracted to work for NASA on several endeavours including programs for developing concepts, designs, and technologies to support future human spaceflight operations and as part of NASA’s Artemis Program to return humans to the moon, and various Commercial Crew Development (CCDev) programs.
All these Space Act Agreement (SAA’s) initiatives are instruments committing NASA to increase cooperation and to support the private sector companies with information and other facilities to accomplish milestones for commercial space programs.
Why such an arrangement?
A partnership between a governmental body and a private entity works well when a private party’s technology and innovation combine with a public sector entity’s incentives to complete work on time. Private Sector participation results in cost savings for the public exchequer in millions of dollars and brings along expanded capacity.
The advantages of SAAs are – access to private finance, efficiency advantages from using private players skills, reduces life-cycle cost and delays in the project, operational and execution risks are transferred from the government to the private participants.
Important design contract provisions
Organizations such as NASA often contract with companies like Blue Origin in some capacity or other, in an area that is still in its nascent stage. In addition, space flight missions are difficult and inherently risky endeavours, and to be successful these organizations know the importance of having a good contract in place before starting work.
A well-written design agreement clarifies expectations and mitigates legal troubles. It should not be adversarial or one-sided – it should be structured to protect everyone’s interest and be mutually beneficial. Parties should make sure that their design contract includes provisions touching upon the statement of work, client responsibilities, deliverables, representations and warranties, timing and payment terms. Some of the important legal provisions that should be included in a design contract between NASA and Blue Origin for designing a spacecraft are detailed below.
A sample draft of the spacecraft design contract can be as follows:
This spacecraft design contract (“Contract”) is entered on ___________(Effective Date) and ___________ (Place) by and between National Aeronautics and Space Administration, located at _____________ (“NASA”) and BLUE ORIGINS, located at ______ (“Contractor”).
- Statement of Work –
The statement of work (SOW) clause incorporates the purpose of the agreement between the parties. In this case, it is to facilitate the design and development of a spacecraft with transportation capability while being safe, reliable, and cost-effective. A brief of the clause can be thus:
The contractor shall complete the design, development, test, evaluation and certification of a fully equipped spacecraft capable of undertaking space missions with NASA crew, to and from the ISS, in accordance with the design standards and requirements specified by NASA in the contract. The contractor shall provide resources, personnel, services necessary to perform the requirement specified. NASA reserves the right to adjust the delivery schedule at no increase to the contract price.
- Inspection and Acceptance –
When parties venture out into such a risky proposition, it is important that NASA exercises rigorous assessment and scrutiny over the work performed by the contractor and should provide acceptance only if the work so performed is to the satisfaction of NASA.
The contractor shall provide and maintain an inspection system acceptable to NASA covering the services, R&D work under this contract. Complete records of all inspection work performed shall be maintained and made available by the contractor during contract performance and even after the contract expires. NASA shall have the right to test and inspect all services and R&D in a manner that will not unduly delay the work, and the right to reject non-conforming services or R&D work. Acceptance shall be final, except for latent defects, fraud, gross mistakes or otherwise as specified in the contract.
- Payment – Considering the nature and scale of the project it is advisable for parties to opt for milestone payments in this instance, against a one-time lump sum payment. This means that the payment is based on the progress made towards completing the work. Payments are released against invoices raised upon achieving defined percentages of the contractor’s work set forth in a schedule and agreed upon between the parties.
The contractor shall submit invoices for the work completed in accordance with the milestone acceptance criteria and payment set forth in the __ schedule subject to the verification and acceptance by NASA. The contractor shall submit the original invoices to the ___ address. NASA shall have the right to reduce or withhold milestone payments in the event the contractor fails to complete milestone performances to the satisfaction of NASA as laid down in the schedule.
- Representation and Warranties – Both parties shall provide representations and warranties to the other party. However, the contractor’s representations and warranties tend to be more extensive in this scenario. The contractor’s representation and warranty can be thus:
The contractor represents and warrants that all information contained herein shall be true and correct on the date thereof and that the contractor is qualified to enter into this contract. There are no actions, suits, litigation, arbitration proceedings pending to the contractor’s best knowledge that would materially adversely affect the contractor, its financial condition, results of operations and cash flows or otherwise prevent the contractor from performing under this contract.
- License, Permits and Approvals – Parties to the contract agree to arrange for the necessary licenses, permits to comply with the Government rules and regulations in association with the transaction. Such licenses, permits and approvals should be taken prior to contracting and should be a condition precedent.
The contractor and NASA agree that they shall comply with the Government’s laws, regulations, policies and directives as they relate to the performance of this Contract without delay. Each party acknowledges that it shall comply with all applicable statutes and regulations and attain all licenses, permits and approvals from the state authorities in respect of the agreement.
- Indemnification – The parties would want an indemnity clause in a contract to absorb the losses caused to that party. The clause often lists the actions against which the party seeks indemnity.
The contractor and NASA each agree to defend, hold harmless and indemnify the other party and its related third parties, for any liabilities, costs and expenses (including attorneys’ fees, costs and expenses), arising as a result of claims brought by related third parties of the indemnifying party, for property loss or damage, personal injury or bodily injury, including death, sustained in connection with the activities carried out pursuant to this contract.
- Limitation of Liability – The parties would prefer to cap their liability to the maximum extent of the contract value. However, to further safeguard its interest, the contractor can further limit its liability in accordance with the milestone payments.
In no event shall either party be liable to the other party in connection with this contract under any direct or indirect damages or indemnities of any kind or for loss of revenue or profit arising out of or in connection with this contract and the contractor’s liability arising shall not exceed the aggregate milestone payments made by NASA. The limitation of liability does not apply to claims based on fraud, wilful representation, misconduct.
- Confidentiality – Parties would want to include the confidentiality clause in the contract to prevent the other party from disseminating proprietary information about itself.
Neither party shall disclose any terms of this agreement to any third party without the prior written consent of the other Party, except as necessary in the reasonable judgment of a party to comply with judicial or other governmental requirements, or when disclosure is required by a governmental agency or under applicable laws. No public announcement, release, or other disclosure of information relating to this Agreement, including the existence of this Agreement or either Party’s performance, shall be made except by prior written agreement of the Parties.
A design contract is a distinct contract wherein the contractor is entrusted with developing detailed designs, fabrication and actual demonstrations, whereas the client intends to supervise and retain control over the progress of the project. NASA effectively states its needs to the marketplace and accepts proposals from companies that would not only design the spacecraft but also operate them as a service sometimes. NASA in its bid to maintain its nation’s global leadership in space exploration partners with private entities to leverage their technical and technological capabilities, to enable scientific investigations and develop new-age technology.
It is pertinent to note that such contracts also have some drawbacks. It involves risks for the private participant, who reasonably expects to be compensated for accepting those risks. This can increase government costs. When there are only a limited number of private participants that are big enough to take these tasks, might limit the competitiveness required for cost-effective partnering. If the expertise in the partnership lies heavily on the private side, the government is at an inherent disadvantage. For example, it might be unable to accurately assess the proposed costs.
However, it is safe to assume that such a contract has the potential to favour all the contracting parties and deliver a positive cost-benefit ratio.
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