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The President and the Congress have both stated on many occasions that we need to foster a domestic ELV industry to support our national defense and to ensure American leadership in the space arena. In furthering that policy we need to develop a method of allocating the liability risks involved in space launch operations that will allow the industry to operate, and, at the same time, we need to find ways to minimize the risks to the government and the American taxpayer.

The Administration has suggested that these goals are best achieved through comprehensive tort reform legislation. There are many in the Congress who would support that position. However, tort reform is not within the jurisdiction of this Committee. In the absence of any indication that the Committee of jurisdiction is going to undertake any review of the quetion of tort reform, then we must look to other methods of achieving our goal through avenues which are within our jurisdiction.

Let me make one final point which I think is very important.

I know that there has been some controversy

within the Administration, and within the Congress, over the appropriate role of the Department of Transportation as the Executive Branch advocate for the commercial space launch industry. I want to reaffirm my personal support for DOT ́s advocacy position, and point out that Section 2 of the bill before us, H. R. 3765, endorses DOT's responsibility under the Commercial Space Launch Act to "encourage and facilitate

commercial space launches by the private sector, consistant with the space policies of the United States as established in public law..." It is my contention that there is a tremendous amount of private capital that will be attracted to support commercial activities in space once we get the government out of the activities that can be supported in the commercial marketplace. Without the efforts of NASA over the

years we could have never developed the technology that is available today. But NASA has always been a R&D agency, and R&D agencies and commercialization efforts tend to be much like oil and water. We need to maintain that advocacy role, and I continue to support the Department of Transportation. With that, Mr. Chairman, let me congratulate you for calling these hearings, and let us hear what the witnesses have to say.

Mr. NELSON. And so, gentlemen, if you will proceed. Mr. O'Brien? And may I say, you know my preference. Instead of you sitting there and reading to us something that's going to be entered in the record in its entirety, we would appreciate your, in your own words, giving it to us in a summary form. Thank you.


I don't know who is responsible for the seating arrangements here at this table, but I assume that by sitting in the middle I acquire some rights to divert questions to other members of this panel when they should arise later, and I appreciate that.

I am pleased to have this opportunity to share with you how NASA has approached risk sharing involving space endeavors as between itself and its users and partners, and I hope that this information will provide for you and the subcommittee a useful backdrop for your consideration of H.R. 3765.

As you are aware, NASA has utilized a number of different agreement formats in dealing with the private sector, with each format specifically tailored to balance the complementary needs and the goals of the Government and the private participant. One of the major balances in such agreements involves the basic sharing of risk between the parties, as it is perceived to potentially exist, in the implementation of a particular undertaking. Inherent in all the possible combinations of agreements is the question of who is willing to accept what risk in a given context, and how that is finally resolved in the future may well determine the pace at which commercial use of space will develop.

This, in turn, illuminates the problem of who are the risk-takers of last resort; that is to say, who pays when something goes wrong. Here we encounter the thorny issues of insurance capacity, cost and continuity, self-insurance, and, of course, indemnification. Commercial survivability may depend on how surgically precise the risks can be identified, accepted and absorbed. What I will try to do here today for you is to give you an overview of how risk is currently being shared between NASA and its commercial users and partners, how we see risk sharing for the Space Station, and how we are approaching the advent of commercial expendable launch vehicle services.

NASA's standard launch service agreement, or as it's referred to, the LSA, evolved over a very long period time and, of course, is oriented towards the use of the Space Shuttle as the transportation mode. Perhaps the area which has been the most controversial and difficult to work out is the sharing of liability risks between NASA

and its customers. A certain amount of innovation was required and solutions emerged over a long period of time.

What we are talking about here generally involves two basic areas of liability: damage to persons and property involved in Space Shuttle operations and, of course, third-party liability. With regard to damage to persons and property, NASA decided that in order to facilitate the use of the Space Shuttle and to simplify the allocation of risks a cross waiver policy would be put in place as a standard LSA provision. Under this policy NASA and all Shuttle users agree to a no fault, no subrogation, interparty waiver of liability, and I think you are familiar with that cross waiver policy. We have had it in place for quite a while. In effect, what it provides is that each participant in a mission agrees not to sue any other participant in the same mission for damage or loss of property that might occur.

The consequences of this cross waiver policy are substantial. The net effect is to eliminate the need for insurance against claims for damage caused by a user to any other participant on the same mission. Most importantly, it protects the user from the most costly of all potential liabilities whether insured or not, and that is damage to or loss of the Shuttle itself. Through this contractual device NASA has removed the most significant property damage issue from the equation.

The third-party liability area has been dealt with in an entirely different way, however. Every non-United States Government user of the Space Shuttle is obliged to obtain, at no cost to NASA, insurance which protects the user and the United States Government from any third-party liability arising out of the activities covered by the LSA. A paramount reason for this is one which you have alluded to already in your opening remarks, Mr. Chairman, and that is to satisfy U.S. commitments to the world community through the Outer Space Treaty and the convention on international liability for damage caused by space objects. We, of course, stand behind these obligations but we require protection for the United States Government as well.

The third-party insurance that we require is that which is obtainable in the world market at a reasonable premium, which is easy to say but not too easy to implement. In the early days of the Space Shuttle flights it had been our experience that the amount available was in the neighborhood of $500 million per payload for a single payload launch, and a maximum of $750 million for multiple launches of commercial payloads on a single mission. I, frankly, don't really know what might be available in the marketplace at the present time.

It is our policy to indemnify Shuttle users against third-party liability over and above the available insurance coverage pursuant to authority available to NASA in section 308 of the Space Act, which was added to the Act by the Congress in 1979. Unlike property insurance, which a user may elect to obtain or not obtain, NASA requires third-party liability insurance policies to be reviewed by NASA due to the potential international liability issue. Mr. Chairman, in my prepared statement for the record I do cover other NASA agreements and similar arrangements that we have in them. I will not take time here to go through those.

Rather, I would like to move on and mention the Space Station for just a moment.

The current international negotiations between the United States, ESA, Japan and Canada also address the cross waiver and the third-party liability issues. The United States has sponsored a cross waiver approach whereby each partner waives its right to bring an action against any other partner for loss of or damage to property of a partner during protected space operations. This approach builds upon and somewhat expands the ÑASA cross waiver which we have utilized in Space Shuttle.

The basic concept is to remove from the liability picture any property damage suffered by one partner at the hands of another partner or partners. The concept surrounding liability of the partners to third parties is very simple. The partners have merely agreed to be liable in accordance with the International Liability Convention and appropriately consult with each other when necessary.

With regard to our approach to commercial launch services, one of our major involvements to date has been to authorize the private sector to operate expendable launch vehicles on a commercial basis utilizing NASA-acquired assets. For example, an agreement between NASA and the General Dynamics Corporation, which became effective early last year, does allow GD to use our AtlasCentaur assets that we had acquired previously. Insofar as thirdparty risk allocation is concerned, NASA is not responsible or liable for any damage which arises out of General Dynamics' commercial Atlas-Centaur activities.

We do have requirements for property damage and third-party liability insurance to protect General Dynamics, the United States Government and the United States' contractors and subcontractors. As you are probably aware, one unresolved matter there requires the Department of Transportation to set the insurance limits, and they are in the process of doing that.

A second major involvement that we have with commercial launch services providers will be the actual purchase of launch services by NASĂ. We have not finalized the first such agreement yet; however, it is clear in the liability area that the United States will remain liable to the international community under international obligations, and that will be a source of continuing discussion between the Government and launch services providers.

On that score, Mr. Chairman, as you know, just the other day the Administration announced a 15-point commercial space initiative. As part of this initiative, the Administration will take steps to address the insurance concerns of the U.S. commercial launch industry, and Mr. Stadd, I believe, will cover this in a few moments. Mr. Chairman, NASA has worked diligently over the years to allocate the risk of space flight in such a way as to facilitate access to outer space for commercial purposes and yet at the same time protect the interest of the United States and its taxpayers. This hasn't been easy. However, we believe we have been successful for the most part. We look forward to assisting the subcommittee and other executive agencies in refining allocation approaches as they affect relationships between the Federal Government and commercial concerns in the future.

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