Reform of the General Clauses and Conditions for ... - Emits - ESA

Reform of the General Clauses
and Conditions for ESA Contracts
Gunilla Stjernevi Head of the Office for Contractual Rules and
Procedures
07/02/2011
ESA UNCLASSIFIED – For Official Use

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
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 2
ESA UNCLASSIFIED – For Official Use

ESA UNCLASSIFIED – For Official Use
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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 4
ESA UNCLASSIFIED – For Official Use

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 crosswaiver,
the Contractor’s liability is capped at the value agreed
in the contract.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 5
ESA UNCLASSIFIED – For Official Use

Liability III – Content of crosswaiver
(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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 6
ESA UNCLASSIFIED – For Official Use

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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 7
ESA UNCLASSIFIED – For Official Use

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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 8
ESA UNCLASSIFIED – For Official Use

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
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 9
ESA UNCLASSIFIED – For Official Use

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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 10
ESA UNCLASSIFIED – For Official Use

Liability VIII – Hold Harmless
Agreement (Clause 18)
Hold Harmless
Cross
Waiver
Waiver of
subrogation
right
Waiver of
subrogation
right
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 11
ESA UNCLASSIFIED – For Official Use

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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 12
ESA UNCLASSIFIED – For Official Use

Liability X – Consequential Damage
(Clause 19)
‣ Exclusion of consequential damage is given via a nonexhaustive
list. This only applies to contractual claims and it
has no influence on third party claims (eg. Infringements of
IPR of third parties)
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 13
ESA UNCLASSIFIED – For Official Use

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)
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 14
ESA UNCLASSIFIED – For Official Use

ESA UNCLASSIFIED – For Official Use
Warranty

Warranty I
Situation under the old GCC:
‣ 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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 16
ESA UNCLASSIFIED – For Official Use

Warranty II (Clause 22)
Solution provided by the new GCC:
‣ 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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 17
ESA UNCLASSIFIED – For Official Use

Customer Furnished Items /
Items made Available
ESA UNCLASSIFIED – For Official Use

Customer Furnished Items / Items
made available I
Situation under the old GCC:
‣ 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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 19
ESA UNCLASSIFIED – For Official Use

Customer Furnished Items / Items
made available II (Clause 11, 12)
Solution provided by the new GCC:
‣ 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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 20
ESA UNCLASSIFIED – For Official Use

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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 21
ESA UNCLASSIFIED – For Official Use

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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 22
ESA UNCLASSIFIED – For Official Use

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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 23
ESA UNCLASSIFIED – For Official Use

ESA UNCLASSIFIED – For Official Use
Key Personnel

Key Personnel I
Situation under the old GCC:
‣ 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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 25
ESA UNCLASSIFIED – For Official Use

Key Personnel II (Clause 9)
Solution provided by the new GCC:
‣ 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)).
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 26
ESA UNCLASSIFIED – For Official Use

Import / Export Licences
ESA UNCLASSIFIED – For Official Use

Import/Export Licences I
Situation under the old GCC:
‣ 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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 28
ESA UNCLASSIFIED – For Official Use

Import/Export Licences II (Clause
15.3)
Solution provided by the new GCC:
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).
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 29
ESA UNCLASSIFIED – For Official Use

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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 30
ESA UNCLASSIFIED – For Official Use

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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 31
ESA UNCLASSIFIED – For Official Use

ESA UNCLASSIFIED – For Official Use
Force Majeure

Force Majeure I
Situation under the old GCC:
‣ 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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 33
ESA UNCLASSIFIED – For Official Use

Force Majeure II (Clause 14)
Solution provided by the new GCC:
‣ 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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 34
ESA UNCLASSIFIED – For Official Use

ESA UNCLASSIFIED – For Official Use
Termination

Termination I
Situation under the old GCC:
‣ 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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 36
ESA UNCLASSIFIED – For Official Use

Termination II (Clause 32, 33)
Solution provided by the new GCC:
‣ 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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 37
ESA UNCLASSIFIED – For Official Use

ESA UNCLASSIFIED – For Official Use
Penalties

Penalties I
Situation under the old GCC:
‣ 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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 39
ESA UNCLASSIFIED – For Official Use

Penalties II (Clause 17)
Solution provided by the new GCC:
‣ The principle of performance related penalties has been
introduced.
‣ The principle of an incentive scheme in connection with a
penalty scheme has been introduced.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 40
ESA UNCLASSIFIED – For Official Use

ESA UNCLASSIFIED – For Official Use
Changes

Changes I
Situation under the old GCC:
‣ 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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 42
ESA UNCLASSIFIED – For Official Use

Changes II (Clause 13)
Solution provided by the new GCC:
‣ 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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 43
ESA UNCLASSIFIED – For Official Use

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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 44
ESA UNCLASSIFIED – For Official Use

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.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 45
ESA UNCLASSIFIED – For Official Use

Questions
Any questions you may have please submit to this email
address:
GCCquestions@esa.int
We will gather the questions, draft answers and publish them as
a Q & A document on EMITS.
GCC Reform | Gunilla Stjernevi | 07/02/2011 | RES-PG | Slide 46
ESA UNCLASSIFIED – For Official Use