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U.S. Department of Transportation **FEDERAL AVIATION ADMINISTRATION** 

**NOTICE OF PROPOSED RULEMAKING REGULATORY**

**EVALUATION [**  **CFR Part 440 Waivers of Claims**  **]**

**OFFICE OF AVIATION POLICY AND PLANS ECONOMIC ANALYSIS DIVISION** 

**Carole Gaelick June 2014** Page 2

**Tabl e of Contents** 

I. Introduction/Discussion of the Proposed Rule ................................ ................................ ............. 4 II. Assumptions ................................ ................................ ................................ ................................ 6 III. Cost Savings ................................ ................................ ................................ ............................... 7 IV . Costs ................................ ................................ ................................ ................................ ........ 12 IV . Net Benefits ................................ ................................ ................................ ............................. 14Page 3

**Executive Summary** This proposed rule would amend the Code of Federal regulations to be less burdensome for those entities signing a reciprocal cross - waiver of claims agreement , including c ommercial s pace launch licensees and permittees, the U. S. G overnment , and the customers who f

ly payloads on the launches. The rule would amend 14 CFR part 440 in the following way s : 1. Incorporate the reciprocal waivers of claims requirements into the regulatory text. 2. The only customers who would have to sign the cross - waiver with the Government and the licensee or permittee would be those who are in a direct contract ual relationship w ith a licensee or permittee (i.e. , first - tier customers) . Currently , all customers to the launch are required to sign the cross - waiver with the government and the licen see or permittee . The responsibility to implement a waiver of claims agreement with customers not in a direct contractual relationship with the licensee or permittee would shift from the licensee or permittee to the appropriate first - tier customer. 3. Customers would waive claims against all customers involved in the launch or re entry including those signing a different set of cross - waivers. Currently , if a customer is added to the launch after the cross - waiver has been signed all parties have to sign again. 4. The FAA would add a template to Appendix C to part 440, for the Waiver of Claims and Assumption of Responsibility for Permitted Activities with No Customer. Currently

the only waiver of claims form in part 440 for permittees is for those with at least one customer.Page 4

These changes would result in cost savings to the licensee , government and customers and minimal cost to the first - tier customer . Most of these cost savings would result because there would be no more requests from licensees that the FAA waive the requirement that sub - tier customers sign cross - waivers, as sub - tier customers would no longer be required to sign the cross - waivers. Minimal costs would be incurred by the first - tier customers who would be responsible for extending the cross - waiver prov isions to their customers, because the y currently do extend cross - waivers to their contractors and subcontractors. Cost savings are presented in the table below.

**I. Introduction** **/Discussion of the Proposed Rule** U.S. regulations require the U.S. Government, a licensee or permittee, and customers of a licensee or permittee to enter into a reciprocal waiver of claims agreement (cross - waiver agreement) in order to fulfill statutory requirement. The current rule results in unnecessary

burden for several reason s. First, the licensee or permittee is required to obtain signatures of all customers, including customers of customers (sub - tier customers) on the cross - waiver agreement. The licensee or permittee may not know the identity of all the sub - tier customers , makingPage 5

the requirement more complex. The FAA has issued waivers to the cross - waiver requirement for several launches that contained payloads owned by entities such as Nano Ra cks , LLC, which arranged to carry student experiments on a locker insert to put into an experimental locker on board the International S pace S tation . NanoRacks and each student who placed a payload on board the NanoRacks insert qualif ied as customers under the FAA's definitions , and would therefore have had to sign the cross - waiver, if the FAA had not issued a waiver to the cross - waiver requirement. Th is proposal would no longer require a licensee or permittee to obtain signatures of its sub - tier customers on the cross - waiver. This would save the cost of the licensee or permittee having to identify its sub - tier customers to obtain signatures , and/or the cost of obtaining a waiver to the cross waiver requirement. Under the proposal , first - tier customers would be responsible for extending the cross - waiver requirements to its customers. The cost to the first - tier customer would be minimal, because the first - tier customer could modify existing templates and would already be familiar with its customers . Second, under the current rule , when a new customer is added to the launch after signatures have been obtained on the cross - waiver , all the signatures have to be obtained again. The proposed changes to the rule language would resolve this so that a customer added at the last minute c ould sign a new and separate waiver of claims without all the other customers having to sign again . This would save the potential cost to the parties to the cross - waiver of re - signing the cross - waiver when a customer wa s added after the initial set of signatures . Third, the C ode of F ederal Regulations (CFR) does not currently contain a template for Waiver of Claims and Assumption of Responsibility for Permitted ActivitiesPage 6

with No Customer. This rule proposes to add such a template . This would save the permittee who has no customer the cost s involved in modif ying the cro ss - waiver agreement in Appendix C to pertain to a permittee with no customer . **II. Assumptions**  The following a ssumptions apply to the analy sis.

 Ten year time horizon

 2013 dollars

 Without the rule the FAA would issue 4 partial waivers to the reciprocal cros s waiver requirement per year  Without the rule the licensee would have to obtain some signatures from sub - tier customers on launches unless waivers have been issued ; however , the costs of obtaining these signatures have not been quantified

 Slight discrepan cies in tables are due to rounding

 The following wage rates are used in the calculations:Page 7

The proposal would amend the CFR in three way s that would lead to cost savings as discussed below. **III. Cost Savings** The proposed rule would provide cost relief to launch operators, customers and the Federal Government. These cost savings are estimated in this section. **1. Amend**  **§ 440**  **.17 and appendices B and C so that a**  **ny customer**  **not contracting**  **directly with a licensee or permittee**  **wo uld not have to sign a waiver**  **directly with the**  **licensee or permittee or the FAA**  **.** Six times in the last year and a half, upon request from the licensee, the FAA has waived, in part, the requirement that a launch operator enter into a reciprocal waiver ofPage 8

claims with each customer. Three of these waivers have been issued to SpaceX and three to Orbital Sciences, Corp. (OSC) for missions in which NASA is a customer. While avoiding the cost that would be incurred by the licensee in obtaining all the customers’ signatures, the process of obtaining this waiver from the FAA has add ed cost for the government (both NASA and the FAA) and the licensee . Assuming the FAA would issue waivers at the same rate without the proposal that it is currently issuing them (6 every ye ar and a half) , then 4 waivers would be issued per year in the future . In the past, it has taken FAA staff 11 to 52 hours to review and grant a request for waivers received from launch operators. NASA spends 10 to 20 hours compiling materials and preparing a letter to send to the l icensee confirming that NASA has agreements in place with all of i t s customers that conform to NASA’s cross - waiver requirements in 14 CFR 1266 . The table below indicates the hours spent and the associated wage rates by the government in the waiver process and the table following that shows total government costs .Page 9

C om panies provided cost estimates to request the FAA waive cross - waiver requirements with all customers. Three waivers have been issued to SpaceX and three to OSC b y the date of this writing. One company provided estimates for the hours used the first time it was issued a waiver, then for a stand - alone mission and for several missionsPage 10

under CRS. The estimated hours used to obtain a waiver for the several missions was the lowest and to be conse rvative we used this in our average. We have weighted each company ’s response by 50%. The table below indicates the average estimated cost (50 hours) the industry

incurs when obtaining a waiver from the FAA. At a burdened hourly rate of $68.14 the total co st per waiver is $3,407 (50 times $68.14). The FAA calls for comment.

For some missions, licensees may obtain signatures of sub - tier customers on the cross - waiver. Based on discussion with a launch operator , we estimate that on average operators spend ab out 100 hours per mission on this task. At a weighted wage rate of $68.14 per hour, this would result in $ 6,814 cost per mission. Based on feedback provided by

this launch operator, we are aware that there have been at least 5 launches 1 over the past 20 years where sub - tier customers have had to sign waivers. If we make the conservative assumption that this trend would continue, we estimate that launch operators would save the cost of obtaining signatures for sub - tier customers on an average of 0 .25 1 This represents only the one launch operator. Without the proposed rule, the number of launches where sub - tier customers would sign the cross - wa iver would likely exceed 0 .25 per year.Page 11

launch es per year. This would result in cost savings of $1,70 4 per year (or $17,0 35 over ten years) .

The FAA calls for comment how much the licensee might save by no longer obtaining signatures of sub - tier customers. **2. Amend the CFR to**  **so that customers that sign a cross**  **- wa**  **iver waive claims against all other customers involved in the licensed activity, including customers**  **signing a separate cross -** **wa iver.**  Under the CFR , if a new customer is added to the cross - waiver after all the signatures are obtained, currently all parties have to re - sign the cross - waiver with all the names of all the parties on the cross - waiver. The FAA proposes amending the CFR to allow a customer who is added later to sign a new and separate waiver of claims with the Government and licensee or permittee, while still waiving claims against all of the other customers on a launch who have signed a separate waiver of claims. The FAA has identified that once in the past 6 years a customer was added to the cross - waiver after signatures were ob tained . A customer was added to SpaceX FlightPage 12

003 - D2. The original waiver contained signatures from the FAA, SpaceX and Space Services Inc. TAGHeuer was added and all the parties had to re - sign the waiver for the launch. For the reentry

of the flight , only the FAA and SpaceX had to re - sign the waiver. The FAA assumes that one instance of re - signing could be avoided over the ten year period following the rule publication . The FAA estimates that each re - signing entity required 1 hour to review the new cross - w aiver and re - sign. These cost savings are minimal and might amount to less than $4 0 0 over ten years, based on each of the signatori es saving one hour. **3. Amend the CFR to add a template of a cross**  **- wa**  **iver to part 440 for permittees with no customers to use.**  A template would allow permittees with no customers to avoid the cost of mo dif ying the waiver of claims form found in Appendix C to part 440 for permittees with customers. This would result in minimal cost savings. **IV .**  **Costs** Although the proposal would n o longer require signatures of sub - tier customers on cross - waiver agreements with the licensee or permittee and the government, all customers would still have to enter into a waiver of claims agreement. The responsibility to implement cross - waivers with cu stomers who are not in a direct contractual relationship ( i.e. , sub - tier customers) with the l icensee or permittee would shift under the proposal, from the l icensee or permittee to the appropriate first - tier customer. Additionally , under the proposal, firs t - tier customers would have to indemnif y other parties to the cross waiver and their respective entities against claims its customers might bring were it not to extend the cross - waiver requirements correctly . So rather than the licensee or permitteePage 13

obtaining signatures of sub - tier customers on the cross - waiver, the first - tier customer would have to implement a cross - waiver with its customers (the sub - tier customer). This would be a new requirement on the first - tier customer. The FAA expects the costs the f irst - tier customer would incur would be minimal because the first - tier customer could modif y the templates provided in Appendices B and C to part 440 and add it to the contract that it has with its customers. Furthermore, customers are all currently required to extend the FAA cross - waiver obligations to their respective contractors and subcontractors . The hourly

burdened wage rate for a lawyer is $92.39, based on Bureau of Labor Statistics 2 including a 17% employee benefit factor. Estimating that a lawyer would spend two hours to add cross - waiver provisions to the contract template , the cost would be $185 for each sub - tier customer . The FAA does not know how many first - tier customers would extend cross - waiver requirements to their customers because we do not know how many first - tier customers fly hosted payloads. The only entities that the FAA is aware of currently that fly hosted payloads are NASA and the Air Force although we understand companies such as SpaceFlight, Inc. may have future plans to fly hos ted payl oads . The FAA calls for comment on the cost estimates and on how many first - tier customers fly

hosted payloads and how many

sub - tier customers are expected on each launch . S ome l icensees, customers and the U.S. G overnment may also have to modify v erbiage on templates used to extend cross - waiver obligations to their contractors and subcontractors to account for the new language. The FAA calls for comments .

2 Lawyers, Occupation Code, 231011, http://www.bls.gov/oes/2013/may/naics4_551100.htmPage 14

**IV. Ne**  **t Benefits** The proposal would result in cost savings to government and industry as indicated below and minimal costs to first - tier customers .

Note: Totals may

not add due to rounding error .