Satellite construction contract

Let us have a look at a satellite construction contract. With the commercial exploitation of space, the contractual aspects relating to the construction, launching or even the exploitation of a space object take on their full significance. More generally, aspects of private law become predominant, even if they are, of course, part of a framework of public, national and international law, stemming from national space legislation, community instruments and international treaties.

Space contracts are not completely new contracts: they borrow pre-existing molds. However, contractual practice is innovating in order to respond to new needs generated by new techniques: innovation is reflected here in the very fine adaptation to the subject of the contract. Let’s have a look at the satellite construction contract.

Numerous restructuring operations have changed the face of the satellite construction market, which now has only a few satellite manufacturers: Hughes Space and Communications, which was taken over by Boeing in 2000, Lockheed Martin, Space Systems/Loral (company bought by the Canadian MDA) and Orbital Science Corporation in the United States of America, EADS Astrium Satellites became Airbus Defence and Space, and Thales Alenia Space in Europe, not to mention the arrival of so-called low cost manufacturers, such as OHB in Germany. The competition between them is very keen.

In recent years, especially in the USA, a satellite manufacturer may also be an operator of satellite systems or even a launch service provider. Restructuring the market, if it does not take the form of vertical integration, can also take the form of acquisitions of financial participation by satellite manufacturers in companies operating services provided by satellite. We can also note that manufacturers, satellite integrators, can also be equipment suppliers on a global scale. In all cases, the manufacture of satellites is part of a complex contractual scheme, reflecting the sharing of tasks between equipment manufacturers, subcontractors and the industrial-integrator.

When concluding the contract, the buyer first establishes certain specifications, combined in an invitation to tender, sent to the selected manufacturers, who submit proposals (technical, financial, contractual details) from which the buyer chooses. The buyers are international organizations, national agencies, and private customers. The content of construction contracts is also likely to vary given the quality of the contracting parties and their bargaining power.

The purpose of the construction contract is “the design, construction, testing and delivery” of one or more satellites. The manufacturer provides the personnel, material, equipment, services and facilities necessary for the performance of its obligations (construction of the satellite, performance of the satellite, etc.). The buyer agrees to pay the price. The nature of the obligations weighing on the two parties immediately brings to mind the qualification of a contract for the sale of a future thing, the spatial object to be manufactured. However, the satellite manufacturing contract also involves the provision of services, inviting us to also consider qualifying as a business contract.

The satellite manufacturing contract would be closer to a business contract, since it corresponds to a single service, suitable for meeting the needs of a client. It does not enter within the framework of a series production (even if one seeks more and more a serial approach, for the manufacture of the platform of the satellite, i.e. the structure of the satellite which contains all the payload support equipment: acquisition of the final orbit, correction of the orbit, satellite attitude control, power supply, thermal control, telemetry, remote control, etc.). However, the contract can be qualified as a business contract only if the customer played a key role in the design of the product (specifications and technical means to be used) and not if he simply described the objectives of the product. The difficulty is to determine what precision we will require from the client to be in the presence of a contract for the provision of services.

This contract, which appeared in the second half of the 1980s, consolidates the services to be performed during the life of the satellite (supply of the satellite, launch, reception, operation in orbit), services which are all the responsibility of the manufacturer. The contract provides for example that “The Satellite Contractor will a) manufacture and deliver the satellite in accordance with the delivery schedule (…) including, inter alia, (i) the design, development, manufacture, assembly, integration, test and shipment of the Satellite; (ii) the performance of the launch campaign, launch and early operational phase, in-orbit test and on-site support; (iii) the delivery of the satellite and other deliverable items, including but not limited to dynamic satellite simulator, satellite control center and base band subsystem and the provision of all necessary personnel, materials, equipment, services, technical data and information, facilities and documentation and (b) online support for in-orbit operation through the lifetime of the satellite (…)”.

The contractual process is simplified for the benefit of the buyer, since he only has one contact, the manufacturer of the satellite. On the other hand, for the latter, the burden of this type of contract is heavy: indeed, he must demonstrate great coordination capacities, and he bears all the risks, ranging from the design of the satellite to its operation in orbit, including its construction and launch (which assumes that the satellite is ready, that the manufacturer has provided the terrestrial infrastructure for positioning and controlling the satellite, etc.). Some aspects fall under the sales contract, others under the service contract. In addition to the specificity of the object to be delivered, as we saw above, to which we will add recourse to the launching company, we could opt for the qualification of service contract. This qualification is further reinforced by the notion of PPP, in which the satellite manufacturer provides a service and no longer an equipment and becomes an operator.

The bargaining power acquired by the manufacturer’s customers, the satellite operators, prompted the latter to sometimes require the manufacturer, not only to deliver a satellite, but also to put it on the job, that it ensures the frequency coordination activities and search for orbital positions, which it supports in the event of complaints from operators to their insurers in the event of satellite failures, etc., most of these activities are traditionally the responsibility of the operator. All of these obligations militate in favor of classifying a business contract.

Since a satellite construction contract is very detailed, the benefit of qualification may seem residual. However, this interest manifests itself, in particular, when the validity of the clauses providing for liability must be assessed, this assessment being carried out differently depending on the nature of the contract, with regard to the applicable law.