Key Contractual Aspects in Hosted Payload and Condominium

Key Contractual Aspects in Hosted Payload and Condominium Satellite Projects Dr. Ingo Baumann Luxembourg Workshop on Space and Satellite Communication Law, 4, June 2015

Overview § § § Typology of Hosted Payloads Projects & Contract Structures Allocation of Risks Delays & Failures In-Orbit Operations Insurance Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 2

Typology of Hosted Payload Projects & Contract Structures Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 3

Typology of (Hosted) Payload Projects HP under responsibility of Host a) Construction/Procurement - Host b) Ownership of Payload - Host or - Client ‘True’ Hosted Payload a) Construction/Procurement - Client b) Ownership of Payload - Client Condominium Satellite a) Construction/Procurement - each party constructs/procures c) Ownership of Common Systems - Host - shared ownership Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 b) Ownership of Payload - each party owns its payload(s) Page 4

Contractual Structure – HP under Responsibility of Host Note: either a joint insurance approach is agreed between Client and Host, or each party takes out insurance separately. Client Host Insurer (e. g. commercial operator) Manufacturer Note: typically, the Host contracts with the Launch Service Provider Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 5

Contractual Structure – ‘True’ Hosted Payload Note: either a joint insurance approach is agreed between Client and Host, or each party takes out insurance separately. Client Note: several approaches on the procurement of the payload(s) are possible, e. g. contract with the same or with different manufacturers. Host Insurer (e. g. commercial operator) Manufacturer Note: typically, the Host contracts with the Launch Service Provider. Launch service Provider Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 6

Contractual Structure – Condominium Satellite Note: either a joint insurance approach is agreed between Client and Host, or each party takes out insurance separately. Insurer Owner B Note: several approaches on the procurement of the payload(s) are possible. Owner(s) may, e. g. , contract with the same or with different manufacturers. Owner A Launch service Provider Manufacturer Note: several approaches on the procurement of the launch are possible, e. g. either procured by Owner A or three-side contract with both Owner A and Owner B. Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 7

Contractual Structures – Key Considerations § All (Hosted) Payload Projects have complex contractual structures: § several entities at the table, including Host, Client, Manufacturer(s), Launch Service Provider, Insurers § several contracts between several entities, which need to be aligned to each other § Even if there is a certain typology, approaches differ very much for each project and require individual contractual solutions § Depending on the individual approach, ownership levels (on payload(s), on common systems) and resulting rights and obligations may differ significantly. § Risk allocation depends on the individual approach Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 8

Allocation of Risks Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 9

Identification of Risks § Identification of risks is key for the drafting of a Hosted Payload or Condominium Satellite contract § Risks may include: § § § § § Client not able to ensure funding late delivery of the payload delays in satellite manufacturing (if separate procurements) launch delay or launch failure harm (e. g. interference) caused by one payload to the other degradation or failure of satellite payload degradation or failure of satellite bus changes of orbital slot during lifetime bankruptcy of the client Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 10

Allocation of risks is strongly linked to technical & operational issues, such as: § § § § physical location and mass requirements of the Hosted Payload power requirements of the Hosted Payload interface of the Hosted Payload with the satellite bus interoperability of the payloads In Orbit Validation (IOV) and acceptance procedures satellite operations, including contingency manoeuvres payload operations These technical and operational issues involve risks that should be contractually allocated between the parties. Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 11

Allocation of risks – General Rules § As a general rule, each party shall bear responsibility for the risks in its sphere and the harm it may cause § However, allocation of risks may vary dependent on the individual approach for the Hosted Payload or Condominium Satellite arrangement § General rule for Hosted Payload is that the payload(s) of the hosting entity has priority over the Hosted Payload(s) § General rule for Condominium Satellites is that both payloads have equal priorities § Within the general typology, there may be highly individualized contractual solutions Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 12

Delays & Failures Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 13

Late Delivery of the (Hosted) Payload § This may become an issue for § § ‘True’ Hosted Payloads (payload is constructed/procured by the Client) and Condominium Satellites (in case the satellite and/or the payload(s) are constructed/procured separately by each party) § Payload needs to be delivered in time to complete the integration prior to the scheduled launch date § Late delivery may cause severe consequences for the Host, including § § the Host can be obliged to pay penalties loss of revenues the Host might lose the frequency rights under ITU However, there may also severe consequences for the Client, namely if he needs to find another ‘ride’ or even a completely new hosting partner Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 14

Contractual Aspects on Late Delivery ‘True’ Hosted Payloads § Contract usually provides that the Host is under no obligation to delay the launch. § Parties usually mitigate the risk of a launch delay caused by late delivery of the Hosted Payload by § § requiring the Client to provide a ‘dummy’ § requiring the Client to pay penalties for every day that the payload is late, if the payload is not delivered by the delivery date § proceeding with the integration of the ‘dummy’, when the payload is not delivered by the integration deadline fixing the required delivery date well before the day the payload must be integrate at the latest Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 15

Contractual Aspects on Late Delivery (Cont’d) Condominium Satellites § § § Priorities not that clear as with ‘True’ Hosted Payloads – no ‘primary’ payload § Parties must agree on the consequences of a launch delay caused by late delivery and on suitable mitigation measures § Several factors to be taken into account, such as However, severe consequences for both parties in case of late delivery Accordingly, to be carefully assessed whether one party is under the obligation to wait for another § § financial engagement of each of the parties expected loss of revenues attribution of responsibility (risk sphere) fault of either party Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 16

Launch Delay § Launch service contracts usually provide: § § substantial penalties for causing an ‘inexcusable’ delay termination rights against the party that causes substantial and/or inexcusable delays Hosted Payloads § Host typically contracts with the Launch Service Provider: § § the Host is exposed to the direct risks these risks must be properly reflected in the Hosted Payload arrangement Condominium Satellites § it may be that both parties contract with the Launch Service Provider § accordingly, risks with regard to launch delays may be allocated directly between the parties in the launch service contract and/or in the underlying Condominium Satellite arrangement Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 17

Launch Delay (Cont’d) Launch delay caused by one of the parties § § Typically, each party bears responsibility for delays in its sphere § Hosted Payload arrangement may foresee penalties or compensation rights of the other party § In Condominium Satellite arrangements, risk may also be shared between both parties § In case of a launch delay attributable to third party, risks are usually shared proportionally between both parties. Legal and financial risks depend on contractual terms of the launch service contract and of the Hosted Payload/Condominium Satellite arrangement Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 18

Launch Failure – Contractual Aspects § Total loss or destruction of the launch vehicle and the satellite (including the payloads), generally, leaves the parties with no recourse. § § Discounted re-launch may be included in the launch service contract Further consequences and mitigation actions should be provided for in the Hosted Payload/Condominium Satellite arrangement Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 19

In-Orbit Operations Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 20

In-Orbit Operations – Contractual Aspects Hosted Payloads § In case of a failure or malfunction of the Hosted Payload that could jeopardize the operations of the ‘primary’ payload or of the satellite bus, the Host is entitled to take all actions possible to protect the primary payload and/or the satellite bus at the expense of the client, e. g. ‘shut off’ the hosted payload § Host typically agrees to use ‘best efforts’ to ensure hosted payload operations, subject to ‘primary’ payload priorities § In case of a degradation of the satellite bus, the Host typically is entitled to allocate power (or other) resources to the ‘primary’ payload § However, in such cases, the Client may have a right for financial compensation Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 21

In-Orbit Operations – Contractual Aspects (Cont’d) Condominium Satellites § § In general, in such cases there is no ‘primary’ payload § In case of a degradation of the satellite bus, power (or other resources) need to be re-allocated among the two parties § In general, risks and responsibilities are shared, if the failure concerns the common systems In case of a failure or malfunction of one payload that could jeopardize the operations of the other payload or of the satellite bus, the contract must foresee proper consequences and mitigation measures Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 22

Movement of the Satellite to a Different Orbital Slot § Movement to a different orbital slot could occur during lifetime § § § for operational reasons in case of harmful interference when the operator sells the satellite § Movement to a different orbital slot may render the other (Hosted) Payload inoperable or reduce its commercialization potential § In such cases, the contract may grant to the Client the right to § § § terminate the contract and claim compensation, or continue operations of the Hosted Payload from the new position and to claim compensation for resulting consequences (loss of clients etc. ) In Condominium Satellite arrangements, decision-making regarding orbital movements may need to be taken by both parties Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 23

Insurance Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 24

Insurance § Generally, the use of insurance can be an effective way to protect a party against heavy losses at a relatively low cost § Insurance may either be taken out § by the Host, including for the Hosted Payload § separately by the Client for the Hosted Payload § jointly, namely in case of Condominium Satellite Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 25

Insurance (Cont’d) § Insurance may cover: § § in-orbit failure or degradation third party damage Insurance may, however, not cover all special risks: § § § launch failure can consequences of power degradations be covered by insurance? generally, limited coverage available in the space insurance market Contract should specify for which risks insurance coverage should be taken out Contract must cover the allocation of costs for insurances Contract should also provide for sharing of compensation paid by insurers Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 26

Conclusions § While there is certain typology (Hosted Payload, Condominium Satellite), solutions widely differ and require strong individualization of contract terms and conditions § Drafting Payload contracts is basically concerned with the allocation of responsibilities and risks between the parties § Dependent on individual project, responsibilities and risks may either be allocated to one of the parties or shared among them There is no standard solution for Hosted Payload and Condominium Satellite projects! Luxembourg Workshop on Space and Satellite Communication Law | 4 June 2015 Page 27

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