Note: Did you miss part I? Read it here.
A way around the government’s unwillingness to indemnify a satellite operator from potential claims is for the contract to limit the liability of the satellite company by “handing off” operating control of the payload to the customer, Phillip L. Spector, Intelsat’s executive vice president, business development, and general counsel said.
“In this way, the hosted payload is treated like any government-operated system: the government user takes control and responsibility for the health of the asset,” Spector explained. Another compromise could be for the government customer to agree to share part of the cost to insure a satellite, Spector said.
Even though the federal government typically self-insures its own assets, the purchase of a policy to protect against a potential loss is “vital” to protect an operator in the event of a launch failure or another catastrophic anomaly before the payload is handed over to the government customer, Spector said. The government customer also could be asked to pay for a portion of the launch cost, Spector said.
Such a sharing of expenses may help to compensate an operator for the need to use a larger launch vehicle to accommodate the government payload or to cover the loss of revenues that otherwise might be generated if commercial transponders had been included instead of the hosted payload.
“In each case, the formula for legal, business and policy success is for each party to recognize, and to discuss openly at the outset, its objectives and its limitations,” Spector said. “Some key provisions – like the requirement for termination for convenience – are easily identified at the outset and can be dealt with in a straightforward manner. Others may be more difficult to spot, but can usually still be identified early in the negotiations.”
A good approach is to address potentially contentious issues to prevent them from cropping up “at the eleventh hour,” Spector said. “Both parties must also recognize, when faced with sometimes perplexing issues, that this innovative approach to government ownership of a space asset may require similarly innovative problem-solving,” Spector said.
“Everyone involved in the negotiations – and especially the lawyers on both sides – would be well advised to enter into them with an open and flexible mind, and with a willingness to stretch well beyond business as usual.” As hosted payloads become more commonplace, a set of “best practices” on contractual issues will evolve, Spector said.
Until then, negotiators on each side may need to show creativity to finalize agreements and gain the mutual benefits of hosted payloads, he added. “Given the many challenges facing those in government, including increasing budgetary challenges, receiving quality services more quickly at lower prices has to be highly appealing,” Spector said.
Paul Dykewicz is a seasoned satellite industry journalist who has covered the development of satellite television, satellite radio, satellite broadband and hosted payloads.
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