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3 CONTRACT RISK MANAGEMENT FOR AIRPORT AGREEMENTS By Robert Alfert, Jr., and Douglas E. Starcher, Broad and Cassel, Orlando, Florida INTRODUCTION The operation of airports involves significant risk. Some of the busiest airports in the United States generate annual travelers in excess of 30 million, spawning a multitude of economic activity, construc- tion and expansion, and general maintenance and operational needs. With safety and security being the paramount concern, the additional risks that arise from normal operations span from the basic context of tenancies and ground transportation to complex capital improvement programs. These risks apply to airports of all sizes; the variations usually are just a question of degree or order of magnitude. A significant portion of the risk that arises in air- port operations can be addressed through risk-shifting and risk-sharing provisions in standard aviation sector agreements and through the use of tailored insurance programs. The purpose of these provi- sions is to shift a manageable portion of the risk to those entities that are being retained for that very purpose, whether it is the contractor that contracts to build a facility or the insurance company that contracts to cover certain risks. The end goal is a balanced risk-management approach that equitably allocates risk among the appropriate parties. Given the potential breadth of this topic, this digest focuses on a body of standard aviation sector agreements that form the core of airport operations. It is impos- sible to capture every possible agreement that an airport may utilize, but the agreements highlighted in this digest constitute the vast majority of opera- tions and incident risk. These agreements will include the following topics in the order presented: A. Professional Services Agreements. B. Construction Agreements. C. Repair/Maintenance Agreements. D. Tenant/User Agreements. E. Airline Signatory Agreements. F. Ground Transportation Agreements. G. Vendor/Purchasing Agreements. H. Software/Information Technology (IT) Agreements. As each agreement provides enough of a topic for a separate Airport Cooperative Research Program (ACRP) digest, the purpose of this digest is to identify the primary risks associated with each agreement. The identification of risk will be corre- lated to specific contractual provisions used by air- ports to address, shift, or allocate the risk presented. The digest will focus on several representative agreements used by major airports to provide a cross section of approaches and will then propose ways to contractually mitigate each category of risk. This ACRP digest will also address the primary insurance instruments used by airports to manage and allocate risk.1 Every agreement will carry spe- cific insurance, with the primary question being whether the appropriate insurance vehicles are being used and whether the required insurance thresholds are commensurate with risk. The authors of this digest recently completed a comprehensive survey of coverage limits used by airports in infrastructure agreements (construction and professional services) and concluded that the vast majority of large-scale projects are underinsured. This digest, therefore, will also propose recommended limits of coverage. An important point before commencing the con- tract discussion is that every state tends to have dis- tinct positions on some legal issues, indemnity law being a prime example. This digest only provides a general overview and does not supplant the need for legal counsel on local law. To the extent that federal funding for any contract type applies, federal law should be reviewed as well. CONTRACT TYPES A. Professional Services Agreements A substantial volume of services performed for airports is generally done through the use of pro- fessional services.2 These professional services can range from design, engineering, and ownerâs 1 ACRP Synthesis 30: Airport Insurance Coverage and Risk Management, TransporTaTion research Board (2011), http://onlinepubs.trb.org/onlinepubs/acrp/acrp_syn_030. pdf, provides a synthesis study of variables that affect insurance purchasing and identifies the range of prac- tices that exist among U.S. airports for coverage selection, choosing deductibles and limits, and risk retention. 2 ACRP Report 87: Procuring and Managing Professional Services at Airports, TransporTaTion research Board (2013), http://onlinepubs.trb.org/onlinepubs/acrp/acrp_rpt_ 087.pdf, provides guidance for procuring and managing professional services at airports and processes for manag- ing professional services contracts.
CONTENTS Introduction, 3 Contract Types, 3 A. Professional Services Agreements, 3 B. Construction Agreements, 8 C. Repair/Maintenance Agreements, 14 D. Tenant and User Agreements, 17 E. Airline Signatory Agreements, 23 F. Ground Transportation Agreements, 27 G. Vendor/Purchasing Agreements, 32 H. Software/IT Agreements, 34 Conclusion, 37 Appendices, 38 LRD 30_Cover_final.indd 2 10/6/16 1:48 PM
