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### U.S. Department of Transportation

FEDERAL AVIATION
ADMINISTRATION



## FINAL REGULATORY IMPACT ANALYSIS

FINAL RULE

[ CFR Part 440 Waivers of Claims ]

OFFICE OF AVIATION POLICY AND PLANS
ECONOMIC ANALYSIS DIVISION

Carole Gaelick

January 2016Page 2



### Table of Contents

I. Introduction/Discussion of the Final Rule

................................ ................................ .................... 4 II. Assumptions

................................ ................................ ................................ ................................ 6 III. Cost Savings

................................ ................................ ................................ ............................... 7 IV. Costs

................................ ................................ ................................ ................................ ........ 12 IV. Net Benefits

................................ ................................ ................................ ............................. 14Page 3

Executive Summary
This final rule will 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 t he customers who fly payloads on
the launches. The rule will amend 14 CFR part 440 in the following ways :
1. Incorporate the reciprocal waiv ers of claims requirements into the regulatory text.
2. The only customers who will have to sign the cross

- waiver with the Government and the
licensee or permittee will be those who are in a direct contract ual relationship w ith a licensee or permittee

. Currently, all customers to the launch are required to sign the cross

waiver with the government and the licensee or permittee

. The responsibility to implement a waiver of claims agreement with customers not in a direct contractual relationship with the li censee or permittee will shift from the licensee or permittee to the appropriate first

- tier customer.
3. Customers will waive claims against all customers involved in the launch or re

- entry including those signing a different set of cross

- waivers. Current ly, if a customer is added
to the launch after the cross

- waiver has been signed all parties have to sign again.
4. The FAA will add a template to A ppendix C to part 440, for the Waiver of Claims and Assumption of Responsibility for Permitted Activities wit h No Customer. Currently the only waiver of claims form in part 440 for permittees is for those with at least one

customer. These changes will result in cost savings to the licensee or permittee , government and

customers and minimal cost to the first

- tier customer

. Most of these cost savings will result
because there will be no more requests from licensees that the FAA waive the requirement thatPage 4

part 440 customers sign cross

- waivers with the FAA and licensee or permittee , because part 440

customers will no longer be required to sign the cross

- waivers.
Minimal costs will be incurred by the first

- tier customers who will be responsible for extending the cross
- waiver provisions to their cust omers, because t hey currently do ext end cross

waivers to their contractors and subcontractors. The FAA requested but did not receive comments on the analysis and estimates presented in the NPRM, so the final analysis and cost savings of the NPRM are determined to be accurate and are present ed without change in this Regulatory Evaluation. These c ost savings are presented
in the table below. The tables in this report may not add due to rounding error.

Cost Savings from the Final Rule Average 7% Present Value Cost Savings 3%

Present Value Cost Savings

Government Cost Savings $138,440 $97,232 $118,092 Licensee Cost Savings No Longer Requesting Waivers $136,282 $95,716 $116,251 No Longer Obtaining Part 440 Customers’ Signatures $17,035 $11,965 $14,531 Cost Savings from Allowing Signatures on Different Set of Cross

- Waivers $365 $256 $311 Total Estimated Cost Savings $292,121 $205,169 $249,185 Note: Totals may not add due to rounding error I. Introduction /Discussion of the Final 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 a statutory requirement. The current rule results in unnecessary
burden for several reasons. First, the licensee or permittee is required to obtain signatures of all customers, including customers of customers ( part 440 customers) on the cross

- waiver agreem ent. The licensee orPage 5

permittee may not know the identity of all the part 440 customers , making 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 N ano Ra cks , LLC, which arranged to carry student experiments on a locker insert to put into an experimental locker on board the I nternational
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 final
rule w ill no longer require a licensee or permittee to obtain signatures of its part 440 customers
on the cross

- waiver. This will save the cost of the licensee or permittee having to identify its part
440 customers to obtain signatures , and/or the cost of obtaining a waiver to the cross

- waiver requirement. Under the final rule , first

- tier customers will be responsible for extending the cross

waiver requirements to its customers. The cost to the first

- tier customer w ill be minimal,
because the first

- tier customer could modify existing templates and will 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 final rule changes to the rule language w ill 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 w ill save the potential cost to the parties to the cross

- waiver of re

- signing the

cross
- waiv er when a customer is added after the initial set of signatures

. Third, the C ode of F ederal R egulations (CFR) does not currently contain a template for Waiver of Claims and Assumption of Responsibility for Permitted Activities with No Customer.
This rule will add such a template

. This will save the permittee w ho has no customer the cost sPage 6

involved in modify ing the cross

- waiver agreement in Appendix C to pertain to a permittee with

no customer

. The FAA made changes to the proposal in issuing this final rule that do not affect the regulatory evaluation, as they are corrections that maintain the intent of the proposal. For instance, the language in the proposal inadvertently would not have ensured contractors and subcontractors of part 440 customers would be in the waiver scheme. It has always been the
FAA’s intention to ensure these contractors and subcontractors continue to be included in the
waiver scheme. In addition , the FAA adds language to preserve the statutory requirements that
all customers (incl uding part 440 customers) waive claims against all the other parties involved in the licensed activity. Further the FAA removes permittees from the indemnification scheme reserved by statute for licensees only. These omissions are corrected in the final rule.
II. Assumptions The following a ssumptions apply to the analysis.

 Ten year time horizon

 2013 dollars

 Without the rule the FAA would issue 4 partial waivers to the reciprocal cross waiver requirement per year

 Without the rule the licensee would have to obtain some signatures from part 440
customers on launches unless waivers have been issued ; however , the costs of obtaining these signatures have not been quantified

 Slight discrepancies in tables are due to rounding

 The following wage rates are used in the calculations:Page 7 Hourly Wage Rates 2013 Dollars

Hourly wage Employee

Benefit Total

Burdened Hourly Rate Private Sector Non

- Scheduled Air Transportation Management (1)(2) $58.24 $9.90 $68.14
Government Federal GS13

- 5 (DC)(3) $48.35 $17.53 $65.88 Federal GS14

- 5 (DC)(3) $57.13 $20.71 $77.84 Federal GS15

- 5 (DC)(3) $67.21 $24.36 $91.57 Benefit factor Benefit factor Private (4)(5) 17% Fringe Benefit Factor Federal (6)(7) 36.25%

(1)http://www.bls.gov/oes/current/naics4_481200.htm#11

- 0000 (2) Industry Non

- scheduled Air Transportation General and Operations Managers Occupation code

- 11

- 1021 (3)http://www.opm.gov/policy

- data

- oversight/pay

- leave/salaries

- wages/2013/general

- schedule/washington

- baltimore

northern

- virginia

- dc

- md

- va
- wv
- pa
- hourlyove rtime

- rates

- by

- grade

- and

- step/ (4) Memorandum on Estimating Total Costs of compensation Based on Wage Rates or Salaries, U.S. Department of Transporation, January 30, 2014. (5) Wage multiplier for salaried employees (6) http://www.whitehouse.gov/sites/default/files/omb/memoranda/fy2008/m08

- 13.pdf (7) Percent of position's basic pay.

The final rule will amend the CFR in three ways that w ill lead to cost savings as discussed
below. III. Cost Savings
The final rule will 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 will not have to sign a waiver directly with the licensee or permittee or the FAA
.Page 8

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 of 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 will issue waivers
at the same rate without the final rule that it is currently issuing them (6 every year and a half) , then 4 waivers will 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 licensee confirming that NASA has agreements in p lace 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 Federal Government Per Waiver cost

Calculations Low High
FAA Attorney Review GS 13

- 5 Hours 6 40 GS 13

- 5 Cost $395 $2,635 GS 15

- 5 Hours 4 10 GS 15

- 5 Cost $366 $916

Office of Commercial Space Review GS 15

- 5 Hours 1 2 GS 15

- 5 Cost $92 $183 Total FAA Cost $853 $3,734

NASA tasks GS 14

- 5 Hours 10 20 GS 14

- 5 Cost $778 $1,557 Total Govt Cost $1,631 $5,291

Government Cost Savings if Waivers No Longer Requested

Year Number Of Waivers Low High Average 7% Present Value Average Cost Savings 3% Present

Value Average Cost Savings 1 4 $6,524 $21,164 $13,844 $12,939 $13,441 2 4 $6,524 $21,164 $13,844 $12,091 $13,049 3 4 $6,524 $21,164 $13,844 $11,301 $12,669 4 4 $6,524 $21,164 $13,844 $10,562 $12,300 5 4 $6,524 $21,164 $13,844 $9,871 $11,942 6 4 $6,524 $21,164 $13,844 $9,224 $11,594 7 4 $6,524 $21,164 $13,844 $8,621 $11,257 8 4 $6,524 $21,164 $13,844 $8,057 $10,928 9 4 $6,524 $21,164 $13,844 $7,530 $10,610 10 4 $6,524 $21,164 $13,844 $7,037 $10,301 Total Cost Savings $65,240 $211,640 $138,440 $97,232 $118,092 Note: Totals may not add due to rounding error.Page 10

C ompanies 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 by 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 missions under CRS. The estimated hours
used to obtain a waiver for the several missions was the lowest and to be conservative 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 obtain ing a waiver from
the FAA. At a burdened hourly rate of $68.14 the total cost per waiver is $3,407 (50 times $68.14).

Licensee Cost Savings of No Longer Having to Request Waivers

Year Number Of Waivers Cross

Waivers Savings 7%

Present Value Cost Savings 3% Present

Value Cost Savings 1 4 $13,628 $12,737 $13,232 2 4 $13,628 $11,903 $12,846 3 4 $13,628 $11,125 $12,471 4 4 $13,628 $10,397 $12,109 5 4 $13,628 $9,717 $11,756 6 4 $13,628 $9,080 $11,414 7 4 $13,628 $8,486 $11,081 8 4 $13,628 $7,932 $10,758 9 4 $13,628 $7,412 $10,445 10 4 $13,628 $6,927 $10,141 Total Cost Savings $136,282 $95,716 $116,251

Note: Totals may not add due to rounding error

For some missions, licensees may obtain signatures of part 440 customers on the cross

waiver. Based on discussion with a launch operator , we estimate that on average operators spend about 100 hours per mission on this task. At a weighted wage rate of $68.1 4 per hour, this will
result in $ 6,814 cost per mission. Based on feedback provided by this launch operator, we arePage 11

aware that there have been at least 5 launches 1 over the past 20 years where part 440 customers have had to sign waivers. If we ma ke the conservative assumption that this trend will continue, we estimate that launch operators will save the cost of obtaining signatures for part 440 customers on an average of 0 .25 launches per year. This will result in cost savings of $1,70 4 per year (or $17,0 35 over ten years)

.
Licensee Cost Savings o f No Longer Having to Obtain

Part 440 Customers’ Signatures

Year Average Number of Missions Signature

Savings 7%

Present Value Cost Savings 3%

Present Value Cost Savings 1 0.25 $1,704 $1,592 $1,654 2 0.25 $1,704 $1,488 $1,606 3 0.25 $1,704 $1,391 $1,559 4 0.25 $1,704 $1,300 $1,514 5 0.25 $1,704 $1,215 $1,469 6 0.25 $1,704 $1,135 $1,427 7 0.25 $1,704 $1,061 $1,385 8 0.25 $1,704 $991 $1,345 9 0.25 $1,704 $927 $1,306 10 0.25 $1,704 $866 $1,268 Total Cost Savings $17,035 $11,965 $14,531 Note: Totals may not add due to rounding error

2. Amend the CFR to so that customers that sign a cross
- waiver waive claims against all other customers involved in the licensed activity, including customers signing a separate

cross - waiver.
Under t he 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 will amend the CFR to allow a customer who is a dded

1 This represents only the one launch operator. Without the final rule, the number of launch es where part 440 customers will sign the cross

- waiver will likely exceed 0.25 per year.Page 12

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 obtained

. A customer was added to SpaceX Flight 003

- D2. The original waiver contained signatures from the FAA, SpaceX and Space Services Inc. TAGHeuer was added and all the pa rties 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

- waiver 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 signator i es saving one hour.
3. Amend the CFR to add a template of a cross
- waiver to part 440 for permittees with no

customers to use. A template will allow permittees with no customers to avoid the cost of modifying the
waiver of claims form found in Appendix C to part 440 for permitte es with customers. This will result in minimal cost savings.
IV
. Costs Although the fina l rule will no longer require signatures of part 440 customers on cross

waiver agreements with the licensee or permittee and the government, all customers will still have to enter into a waiver of claims agreement. The responsibility to implement cross

- waivers
with customers who are not in a direct contractual relationship ( i.e. , part 440 customers) with the
l icensee or per mittee will shift under the final rule , from the l icensee or permittee to thePage 13

appropriate first

- tier customer. Additionally, under the final rule , first

- tier customers will have to indemnify 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 permittee obtaining signatures of part 440 customers on the cross
- waiver, the
first

- tier customer will have to implement a cross
- waiver with its customers (the part 440 customer). This will be a new requirement on the first

- tier customer. The FAA expects the costs the first

- tier customer will incur will be minimal because the
first

- tier customer could modify the templates p rovided 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 hourl y 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 will spend two
hours to add cross

- waiver provisions to the contract template , the cost will be $185 for each part
440 customer. The FAA does not know how many first

- tier customers will 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 hosted paylo ads

. S ome l icensees, c ustomers and the U.S. G overnment may also have to modify verbiage on templates used to extend cross

- waiver obligations to their contractors and subcontractors to account for the new language

.

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

IV. Ne t Benefits
The final rule will result in cost savings to government and industry as indicated below
and minimal costs to first

- tier customers

. Cost Savings from the Proposed Rule

Average 7% Present Value Cost Savings 3%

Present Value Cost Savings Government Cost Savings $138,440 $97,232 $118,092 Licensee Cost Savings No Longer Requesting Waivers $136,282 $95,716 $116,251 No Longer Obtaining Part 440 Customers’ Signatures $17,035 $11,965 $14,531 Cost Savings from Allowing Signatures on Different Set of Cross

Waivers $365 $256 $311 Total Estimated Cost Savings $292,121 $205,169 $249,185 Note: Totals may not add due to rounding error