Indemnification and Cross-Waiver Authority

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INDEMNIFICATION AND CROSS-WAIVER AUTHORITY
THURSDAY, OCTOBER 30, 1997
U.S. House of Representatives,
Committee on Science,
Subcommittee on Space and Aeronautics,
Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:08 a.m., in room 2325, Rayburn House Office Building, Hon. Dana Rohrabacher, Chairman of the Subcommittee, presiding.
    Chairman ROHRABACHER. The Subcommittee is called to order and this is the Subcommittee on Space and Aeronautics and, before we begin, I would like to say a few words about a member of this Subcommittee who passed away Tuesday night. While Walter Capps and I were on opposite sides of the political fence, he was a respected and honorable member of this Committee and, just to let you know, I really liked Walter Capps. I think everybody liked Walter Capps and he was a terrific human being. He was a professor and we all knew him and loved him for his inquisitive mind. He added a great deal to our hearings. He will be missed. He wasn't like a lot of us who grew up in the rough and tumble of politics. He really did—every little issue that sort of grabbed his attention, he examined it and looked at it and he was a joy to work with and an honorable person.
    And I think that, as an academe—we, at this level of politics, anyway, try to treat each other with a great deal of respect, even though we might disagree with one another. And Walter Capps just exemplified that. He was a fine person and we're very sorry he's gone but we're very happy that we've had the opportunity to serve a few short months with him and get to know him as a person. He contributed a great deal to his profession and he contributed a great deal to America. And so, he will be missed and we're sorry that he is gone and we express our sympathy to his family as a Committee and all of those things are especially true for me personally, as the Chairman of this Subcommittee. Mr. Cramer, do you have a few words?

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    Mr. CRAMER. I do, Mr. Chairman. I think it's very appropriate that we pay tribute to Walter Capps who was a new member of this Committee and this Subcommittee and I think a lot of us were just beginning to get to know Walter as is often the case here with our travel schedules and our hectic time. We don't, this day in time, have all that much opportunity to get to know one another. Walter was a unique individual. As the Chairman has pointed out, he displayed his personality and his character as often as you were around Walter, that was displayed to you. I had an opportunity a couple of times to hear Walter speak outside this arena but in this area, here, and talk about his life, his family, again, display his personality and his character and he was truly a unique person. It was with great shock and sadness that we received the news of his death as he returned back here to Capitol Hill to get ready to vote the other night. He represented the interests of his district—his constituents—with integrity, with persistence, and, as I said, with unfailing good humor. So, I think, I would want Walter and his family to know that we are paying respect for him in this way. Mr. Chairman, thank you for giving us this time.
    Chairman ROHRABACHER. With us today is we have a family from my district and we have two scouts with us and I wonder if the scouts would stand up here. There we go. We've got two boy scouts and I want you all to know I am an eagle scout and very proud to be an eagle scout. So, thanks fellas, for joining us today.
    The technology we're developing and we're working on, those are the folks who are going to fly this new technology that we are trying to set down the legal parameters for to make sure that they can be—that can be—commercialized technology. Today we are going to discuss issues not of space technology, but of space law. And members of this Subcommittee will remember just a short time ago I pointed out that in my first political campaign, my most effective slogan was, ''Vote for Dana, at least he's not a lawyer.''
    [Laughter.]

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    Chairman ROHRABACHER. Unfortunately today, that slogan is coming back to hurt me and to haunt me because we are going to be talking about some lawyerly issues. NASA and our space industry are the experts at developing and building new technologies but we in Congress have the responsibility to make sure that the legal issues don't trip them up. Politicians can occasionally harm some portion of our economy by passing or failing to pass legislation and a frontier activity like space research and commercialization is especially vulnerable to this sort of unintended damage. Indeed, I believe it was Werner von Braun, himself, who said we can lick gravity, but it's the paperwork that we can't overcome.
    At the direction of this Subcommittee, NASA and the space industry are attempting to use new ways of doing business and we see that in the X–33 and the X–34 initiatives in the Reusable Launch Vehicles program. These are pioneering efforts not only in technology but in organization and in the legal structure. What we are addressing today are the consequences of these new approaches bumping up against laws that were written for old ways of doing things. Because these programs are so vital to America's future in space, I believe the Congress must pass legislation to bring our laws up to date. At the same time, we can't just change the laws reflexively. We must consider both actual need for changes and the impact of these changes, both obvious and, perhaps, more subtle.
    Specifically, the White House has requested that Congress give NASA two kinds of legal authority. First, NASA would like to indemnify industrial developers of experimental aerospace vehicles against significant third-party damage claims. Did you all get that? Alright. Second, NASA would like the Congress to reaffirm its traditional ability to sign reciprocal cross-waivers of liability with the domestic entities it deals with on aeronautics and space research development projects.
    NASA has proposed broad and powerful legislative language to gain these powers. The language is a permanent amendment to the organic National Aeronautics and Space Act of 1958 and applies not only to the X–33 and X–34, but to other important aerospace projects, such as the Space Shuttle and the International Space Station.

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    The Senate, in putting together S. 1250, its NASA authorization bill for Fiscal Years 1998 to 1999, has counter-proposed a much narrower and temporary authority to address the immediate needs regarding X–33 and X–34. The goal of this hearing is for us to ask NASA and the industrial developers of the X–33 and X–34 what they really need and why they need it and whether the Senate's proposed legislation provides that. Then we can negotiate with the Senate in an informed way as we conference the two authorization bills.
    I now recognize the Ranking Member, Bud Cramer, and I want to congratulate Bud for a new appointment that will put him among the Cardinal—no, not among the Cardinals, yet, but——
    [Laughter.]
    Chairman ROHRABACHER. Among the Cardinals' helpers, or something.
    Mr. CRAMER. Yes, many things have to happen, don't they? I'm starting all over again on the Appropriations Committee.
    Chairman ROHRABACHER. And we are——
    Mr. CRAMER. Hold it down, hold it down.
    [Laughter.]
    Chairman ROHRABACHER. And everybody's patting him on the back and now everybody is Bud's best friend.
    [Laughter.]
    Chairman ROHRABACHER. But I want you to know that Bud has played a very positive role here and we—Bud and I have always been friends and always worked together very closely and I wish him well on his new assignment. And I hope you can stay in this Committee at the same time. I don't know what—if that's possible.
    Mr. CRAMER. I'd love it. I'm not sure it is possible.

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    Chairman ROHRABACHER. Well, we'll see.
    Mr. CRAMER. Thank you, Mr. Chairman. I've enjoyed—I've been on this Committee and this Subcommittee since I came to the Congress in 1991 and, as I look around the room and around my colleagues here, I've enjoyed working with all of you very, very much and will just wear a different hat with you now.
    I would like to join the Chairman in welcoming the witnesses to today's hearing. Not everyone will understand today's hearing. I am a lawyer as well as a Member of Congress and those are both liabilities from time to time, particularly when you're running back for this office again. This topic may seem to be a bit dry and arcane but, actually, we're talking about risk and responsibility between the government and the private sector. It's a very, very important issue and things have changed an awful lot and we must refocus our attention on this issue. We're talking about how best to construct an arrangement that protects the interests of the taxpayer while allowing the government and industry to work together on projects of mutual benefit. I've been a strong supporter of the advanced space transportation research and development, including the X–33 and X–34 programs and I'm particularly proud of NASA Marshall, my space center there in Alabama, and the role that it has played there. I've also expressed my support for providing appropriate indemnification and waivers of liability to allow those programs, X–33 and X–34, to proceed. Thus, I am looking forward to hearing from NASA and the industry representatives about what the proposed amendment that NASA is offering would do, why it's needed, and what the consequences of that would be. So, I look forward to this hearing. Thank you, Mr. Chairman.
    Chairman ROHRABACHER. All right. Without objection, the written statements of other members will be made part of the written record. And, hearing no objections, so ordered.
    The House is in session this morning and we'll probably have to break for a vote. So, without objection, the Chair asks for unanimous consent to declare a recess at any time. Hearing no objection, so ordered.

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    With us today we have three distinguished witnesses to address the topic of indemnification and cross-waiver authority. And, before I introduce them, I would ask them all to stand so that they can be sworn in. Raise your right hand. Do you solemnly swear or affirm that the testimony you will give before this Subcommittee will be the truth, the whole truth, and nothing but the truth?
    Ms. EDWARDS. I do.
    Mr. RISING. I do.
    Mr. LINDBERG. I do.
    Chairman ROHRABACHER. Okay. You can be seated. And I thank you all for coming here and, without objection, your written statements will be placed in the record. And what we would ask is that if you could summarize, hit your major points, and summarize in a 5-minute summary. But, as I say, your entire written statement will be part of the record and then we will proceed to questions. Once all the witnesses have testified, the Subcommittee will then proceed to ask questions of the entire panel.
    We first have with us June Edwards, NASA's Associate General Counsel. Ms. Edwards, you may proceed.
TESTIMONY OF JUNE EDWARDS, ASSOCIATE GENERAL COUNSEL, NASA
    Ms. EDWARDS. Thank you, Mr. Chairman, members of the Subcommittee. I am pleased to be here today to testify on behalf of Edward Frankle, who is the NASA General Counsel, in support of an important piece of legislation, the amendment of section 308 of the National Aeronautics and Space Act as contained in NASA's Fiscal Year 1998 authorization bill. This amendment addresses two fundamental, yet distinctly—very distinct, liability issues, namely cross-waivers of liability and indemnification. I'd like to address cross-waivers first.

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    Cross-waivers relate primarily to first-party and second-party liability. In waivers of liability, each party agrees to bring—bear its own risk of participation in a joint space activity and is thus freed from the concern that it may be liable for other parties' contributions. Without a cross-waiver, each participant would be subject to the total risk of the activity, not just its own participation. Not all liabilities are waived, however, just those of the parties, their contractors and subcontractors. Claims by natural persons, such as employees, as well as claims premised on willful or intentional harm, are explicitly not waived. To do otherwise, to waive, for instance, the claim of an astronaut and his or her estate, would not only be unfair, but could even be unconstitutional.
    Cross-waivers of liability were first implemented in the 1970's and, since that time, have become the standard in the space launch world, both for commercial and governmental sponsored activities. NASA has employed them to great effect throughout its long history of Launch Services Agreements for Shuttle launches and in its many international and domestic cooperative activities. Nearly a decade ago, Congress specifically reassessed NASA's cross-waiver practice in its consideration of amendments to the Commercial Space Launch Act and, as a result and on the basis of the NASA experience, required such cross-waivers as a condition of Commercial Space Launch Act licenses.
    Beyond merely saving money, the cross-waiver also encourages space activity by reducing uncertainty. This is particularly important in the commercial context. While governments may more easily elect to self-insure against catastrophic losses in a given high-risk activity, private companies are more tightly constrained by limited resources and by directors' and stockholders' objections to assumption of large but undefined and unlimited contingent liabilities. Moreover, the cost of insurance for certain activities may be prohibitive, or insurance may simply be unavailable. The near-universal recognition of these facts is what makes cross-waivers a standard feature of commercial space agreements as well as government space agreements.

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    While there's no doubt about the utility and practice of using cross-waivers of liability, the Department of Justice, in conjunction with NASA and the Department of State, recently reviewed the legal authority employed for waiving claims of the United States and recommended that authority be clarified by a specific statutory grant. That is what we are seeking today, an explicit statement of NASA's ability to waive claims of the U.S. Government in its domestic cross-waivers. Without the amendment, the commercial aerospace industry supporting NASA's aerospace activities could be placed at a competitive disadvantage vis-a-vis our international partners and their contractors. This flows from the fact that under a presidential delegation, NASA can waive these claims in international agreements but may not be able to provide the same level of insurance to our—in our wholly domestic activities.
    Cross-waivers have to do with first and second parties. Indemnification has to do with third parties or parties not involved in a particular space activity.
    The second part of the Administration's proposal addresses indemnification authority. Today, this Congress is faced with issues similar to those evaluated by an early Congress, over 18 years ago, in 1979. Then, the Nation was planning its development of the first reusable launch vehicle, the U.S. Space Shuttle, which would be launched into space and return to Earth, flying above major population centers on its journey. Because of this, many potential Shuttle users were reluctant to expose themselves to the chance of a Shuttle mishap over populated areas and enormous third-party claims.
    In testimony before the House Subcommittee on Space Science and Applications, Mr. Neil Hosenball, then NASA General Counsel, explained why legislation was necessary: ''The mix of payload users which we seek to encourage to use the Shuttle: United States, foreign government, intergovernmental organizations and commercial organizations. That mix all but prevents an orderly and equitable allocation of risks of liability absent special authority. For example, if a university professor were to fly a small payload for a payment of $10,000 to NASA, third party liability insurance could cost up to five times that amount. Moreover, if a number of commercial users each attempted to acquire adequate insurance on a given Shuttle flight of the estimated $300 to $500 million capacity then available, the cost of that insurance would prohibit their moving into the Shuttle.''     As a result of this and other inputs, Congress amended the Space Act to add a new section 308. Under this authority, Shuttle users are obliged to obtain third-party liability insurance, at no cost to NASA or the U.S. Government, to protect themselves and the U.S. Government from claims by third party from damage or injury resulting from Shuttle activities. The amount of insurance has been fixed at no more than $500 million, or the maximum amount of insurance available in the world insurance market at a reasonable premium. This formation has a very real benefit to the government, as well. For third-party claims within the insurance amount, the treasury is protected by the insurance policies at no cost to the taxpayer. Only if a payable third-party claim exceed insurance amounts does NASA accept payment responsibility.

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    The process by which NASA, in its discretion, provides indemnification is based on an analysis, on a case-by-case basis, which takes into account inherent risks, available insurance, the cost of the insurance, and the relationship of the activity to the NASA mission. In the Shuttle program, NASA has generally required customers with primary or the large payloads to buy the full amount of third-party liability insurance on the market. In addition, the cross-waivers that we just spoke of are always used where indemnification has been provided so there is no risk of indemnifying against a claim that has already been waived. Finally, and I think this is very important, NASA limits its risks and the risks to the U.S. taxpayer through vigorous program management and oversight of the Shuttle vehicle operations program. As a result, for the entire period in which section 308 authority has been used, there has never been a third-party claim paid, additional resources have been available for space activity, and the cost of insurance has decreased.
    Now, a new situation has arisen which calls for yet another approach to indemnification. In the past, experimental aerospace vehicles were routinely produced under government contracts and carried only government property and personnel.
    Chairman ROHRABACHER. Is there a way that you're going to summarize that last part of your statement?
    Ms. EDWARDS. I will, sir; now.
    Chairman ROHRABACHER. Alright.
    Ms. EDWARDS. Thank you. I believe the proposed legislation, which addresses a fair and equitable allocation of risk, will provide a significant benefit to the Nation's space program. The low level of risk to the taxpayer in these types of indemnification programs is shown by the fact, as I have just said, that in the almost 20 years there have been no claims actually paid under indemnification. We think it's especially important at this point in NASA and the aerospace's life. This is a very creative time in our industry. NASA needs the authority under this legislation to creatively respond to new and emerging commercial space initiatives. Thank you.

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    [The prepared statement of Mr. Frankle follows:]
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    Chairman ROHRABACHER. Thank you very much. I was a speech writer and that was my profession, as a journalist and speech writer, so sometimes it's a little easier for me to condense things than it is for people from the legal profession. I understand that but we do have only a limited amount of time.
    Ms. EDWARDS. I understand, sir. Thank you.
    Chairman ROHRABACHER. Also with us today we have Jerry Rising, Lockheed Martin's Vice President for Reusable Launch Vehicles and he oversees the entire X–33 VentureStar program which we are very excited about and very supportive of. Jerry, we understand you actually took a day away from the X–33 critical design review for this meeting and, so, I guess you understand how important it is that we change this law to make sure that you guys can be successful and do business.
    Mr. RISING. Yes, sir, it's—thank you very much.
    Chairman ROHRABACHER. You may proceed.
TESTIMONY OF JERRY RISING, VICE PRESIDENT, REUSABLE LAUNCH VEHICLES, LOCKHEED MARTIN AERONAUTICS SECTOR
    Mr. RISING. It's my pleasure to be here. Good morning, Mr. Chairman, ladies and gentlemen. I'm happy to talk about the X–33 program and the importance for providing for a financial responsibility and risk allocation regime comparable to what is currently established for other aerospace activities. This is an issue that is vitally important as we move forward with the X–33 program and I am pleased to see the attention it is receiving before the Congress.

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    The X–33 program, a demonstration of technologies necessary to verify the feasibility of a reusable single-stage-to-orbit launch system, is a most exciting and challenging program. It is focussed on changing the business relationship between the government and industry with the ultimate goal of developing a new national capability for space access at a cost to both the government and commercial customer that is significantly less than they are paying today. In order to achieve this goal, NASA took a bold and exciting step. NASA agreed to fund the high-risk advanced technologies to a level that we hope will induce private capital investment for the full-scale operational vehicle. As the name implies, X–33 demonstrator is an experimental vehicle. It is funded by the government with a significant level of investment from private industry.
    Today we are discussing how financial risks of liability resulting from the X–33 program should be shared between the government and industry partners. The X–33 program is being carried out under a cooperative agreement, rather than under a conventional NASA contract. This cooperative agreement has many advantages in terms of flexibility and responsibility of both government and industry. However, it has become evident that there are limits to NASA's authority in the context of this new legal mechanism. The NASA–X–33–Industry Cooperative Agreement has placed the X–33 flight test program in a gap wherein traditional government coverage for a third-party liability is unavailable, either under Public Law 85–804 or under the NASA Act, and the Commercial Space Launch Act is not applicable. With the Cooperative Agreement in place, NASA has determined that they cannot provide third-party indemnification coverage for X–33 flight tests. Therefore, the launch insurance and the indemnification regime provided by the proposed NASA legislation is essential for the X–33 program.
    Lockheed Martin fully supports the language drafted by NASA to extend its current authority under the NASA Act to cover experimental aerospace vehicles that are non-commercial and not government-owned operations but that are being developed pursuant to a government-NASA contract. As we continue to see with expendable launch vehicles, space launch remains a risky business, even on proven vehicles. Consequently, the U.S. Government has successfully implemented a long-standing approach to allocation of these risks. The principle began under conventional DOD and NASA contracts and was extended to the commercial launch services industry. If looked at as a continuum, what is being sought is application of the same approach for other space vehicles and activities. We would like to see the Congress give NASA the clear authority it has asked for to provide for insurance and indemnification for loss in excess of what NASA determines to be reasonable and affordable insurance for the contractor to provide on this type of program. If the government does not provide this coverage, the cost of insurance would be prohibitive.

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    Lockheed Martin also supports a reciprocal waiver of claims regime that clearly allocates to each waiving party financial responsibility for its own property losses and losses sustained by its own employees such that the other waiving parties are free of financial exposure for these claims.
    Although the X–33 flight tests are not scheduled to begin until mid-1999, we urge consideration of this measure as soon as possible. First, we need consideration of—we need the government's determination of insurance requirements and the government's indemnity to allow us to work with insurers. Second, X–33 represents a major confidence-builder regarding development of the future operational single-stage to orbit launch system. To potential investors and customers, this legislation is an important indicator of the government's support and commitment to the X–33 program and the full-scale VentureStar RLV system.
    In summary, we believe X–33 and eventually the VentureStar RLV technology are essential for an affordable space launch capability in the future. We strongly and urgently request Congress to consider passage of the legislative language so that we can flight test the X–33 program on schedule. Thank you for your consideration regarding this issue.
    [The prepared statement and attachments of Mr. Rising follow:]
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    Chairman ROHRABACHER. Thank you very much. And last, we've got Dr. Robert Lindberg, Orbital Sciences Vice President for the X–34 program. As you've heard, the bells went off which means in about 12 minutes or so or 11 minutes, we have to be over on the Floor voting. Now, we might—if you could summarize in 5 minutes, it would be very helpful.
TESTIMONY OF ROBERT LINDBERG, VICE PRESIDENT, X–34 PROGRAM, ORBITAL SCIENCES CORPORATION

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    Mr. LINDBERG. Thank you, Mr. Chairman, I think I can summarize in 5 minutes. Chairman Rohrabacher and members of the Subcommittee, thanks for the opportunity to address you today on the subject of indemnification and how it impacts the X–34 reusable launch vehicle technology program. Mr. Chairman, I'm Bob Lindberg and I—you will forgive me, I am also not a lawyer but, rather, an engineer.
    Your hearing today in this legislative session is particularly timely in respect of the near-term flight objectives of the X–34 program. We are assembling the first vehicle today and our first flight is scheduled for December of 1998. X–34 is a flight demonstrator and an important part of the RLV program being executed by NASA. X–34 is an experimental, air-launched hypersonic rocket-powered vehicle. It's neither a launch vehicle nor an aircraft but it does have the characteristics—some of the characteristics—of each. The X–34 program will demonstrate new approaches that will dramatically reduce the time and the number of people that are required to process and launch a future reusable launch system.
    Achieving this objective will significantly reduce the cost of space access for future operational vehicles, or RLVs. Additionally, the vehicle will test advanced technologies that are embedded in the vehicle's design and contribute to our understanding of how to make future reusable launch vehicles more like—operate more like—commercial aircraft.
    We currently expect the X–34 to be a ''work horse'' of the RLV program. Its launch costs are expected to be affordable. The vehicle is inherently robust and each airframe is designed to be capable of numerous flights. To understand how to operate an RLV more like an aircraft, it's necessary to fly frequently and under operational conditions. Doing so, we'll be able to understand the practical operational life of the vehicle and its various subsystems. By sustaining an operational flight rate, we'll also be able to explore how to operate and process the vehicle efficiently. Frequent flights also provide additional opportunities to fly experiments that can advance NASA's RLV and Aerosciences program goals.

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    Contractually, we must certify that the flight range infrastructure—to the flight range infrastructure—that we're able to fly each and every time in a manner that is consistent with range personnel and assets, flight personnel and assets, and the safety of the general public. Furthermore, before even one flight is conducted, it's necessary to have in place the means of protection against damage, loss or injury that might result from the operation of our experimental vehicle for the benefit of NASA. This protection is generally referred to as indemnification.
    As the developer and the prime contractor, Orbital is exposed to considerable potential liability that may result from claims by third parties for death, personal injury, or other loss resulting from the operation of the vehicle. The risks associated with this operation are of an ''unusually hazardous'' nature. A complicating factor in this particular case is that the failure of the vehicle may occur as the result of failure of government-furnished property which is part of the vehicle design—part of the vehicle for which the design responsibility rests with the government. In particular, the Fastrac main engine for the X–34 program is being developed separately by NASA at Marshall Space Flight Center.
    As with expendable launch vehicle operations, the risks involved in the operation of X–34 exceed the indemnification limits associated with the general risk of hazardous operations within industry in the United States. Expendable launch vehicle operations conducted for NASA are indemnified by NASA through authority granted through the Space Act. The Space Act, however, does not extend that authority to a non-commercial but non-government-owned reusable launch system such as X–33 or X–34.
    Orbital requires the assistance from the government to indemnify the X–34 flight program against liability for the losses described above. When the X–34 contract was negotiated, it was a difficult issue for us on both sides. NASA asserted that they did not have the authority to indemnify X–34 under existing law, either in the Space Act or P.L. 85–804, and the Commercial Space Launch Act didn't apply, either. And Orbital recognized that the acquisition of such protection—such insurance protection might be unattainable at any reasonable price from the private sector. The terms of the contract currently stipulate that NASA will seek the authority to indemnify experimental vehicles, such as X–34, and, in the absence of such authority, will share the cost of premiums with Orbital Sciences Corporation.

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    This latter solution is an unsatisfactory solution to both sides. Insurance providers, first of all, are not required to place this type of insurance and, furthermore, it's our experience that providers will not provide firm quotes until they understand the technology involved and until we're much closer to a flight date. To that end—in the end, adequate insurance may either be not available at all or much too expensive for either industry or the government to shoulder.
    The previously mentioned existing statues also do not recognize the reality of the new business relationships that NASA is forging in an attempt to keep its costs down and to be more responsive to both industry and national priorities. X–34, in particular, is a non-commercial, non-government-owned vehicle, although it has government-furnished property involved in its design. Under our contract with NASA, Orbital will conduct the X–34 operations on behalf of the U.S. Government. Traditional indemnification does not cover these non-commercial, non-government-owned vehicles and Orbital is taking considerable risk to operate this vehicle in an attempt to be responsive to NASA's state of need for reduced launch costs.
    If the Nation is to develop low-cost access to space any time in the foreseeable future, the U.S. Government must bear its share of the risk in the form of indemnifying and through provisions of cross-waiver of liability for flight programs with experimental technologies. Failure to do so will bring a halt to our progress in achieving NASA's and the industry's shared goals.
    At Orbital, we support NASA's initiative to seek authority to indemnify these new reusable launch programs, consistent with their authority to indemnify expendable launch vehicles through the Space Act. We have studied the language contained in S. 1250, the NASA Authorization bill for Fiscal Years 1998 and 1999, as introduced in the Senate. The indemnification in S. 1250 goes a long way toward addressing the issues we have been discussing today. We realize that time in this legislative session is growing short but, given our flight date, we feel that this issue must be addressed in this legislative session and we hope that the Committee can come—reach a compromise with the Senate and pass this critical legislation. Thank you, Mr. Chairman.

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    [The prepared statement of Mr. Lindberg follows:]
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    Chairman ROHRABACHER. Thank you very much to all the witnesses. I had intended to have Mr. Davis take over and go through his questions while we're going to vote but Mr. Davis is not here and we have got to go and vote. So, with that, this Subcommittee is—yes, where is Mr. Davis? It's recessed for 10 minutes.
    [Brief Recess.]
    Chairman ROHRABACHER. Without objection, we will proceed.
    And so, before we do proceed, I'd like to note something I heard on the radio yesterday, which, I think is just sort of a pristine analysis, and it said—the announcer said—that, ''In the United States, 100 years is a long time; and in Great Britain, 100 miles is a long way.'' And, I thought that was significant to what we're discussing today. Because, what we really are, is building a future in what we would consider to be a long time—100 years from now. I think that we have no idea what it's going to look like, but we are building near-future—20 years from now. We are building at a time when we can actually commercialize space activity to a greater degree than we have ever known, up until this time. That's what the X–33 and the X–34 are all about. That's the whole reusable rocket concept is all about. And we're building the legal foundation for that tomorrow.
    And, of course, when we're talking about distances—long distances—I happen to believe that once we get into lower-Earth orbit and bring down that cost, that we will be able to then look at projects like Mars missions and other types of explorations of the universe in a much more rational way.
    Today people are talking about going to Mars, and it just seems, again, that they're putting the cart before the horse. They're taking step no. 5, rather than going through steps no. 3 and 4. And, once we do solve this reusable rocket—the reusable rocket problems—and getting into lower-Earth orbit at a cheap cost, we can do anything. I mean, we'll be able to go anywhere. And, these dreams that people are having today will be very obtainable—or attainable, I should say.

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    So, with that thought, I'd like to ask a couple questions about testimony and about the subject at hand in terms of indemnification and liability costs. And, Mr. Rising, I wonder if you could explain in laymen's terms, why the X–33 cannot be flight tested without cross-waiver and indemnification?
    Mr. RISING. We are not prepared to fly the X–33 without third-party liability and indemnification. This is an issue that came up before we signed the cooperative agreement, and we registered our concern with NASA, and NASA agreed to work with us to get the language introduced that would give us third-party liability insurance by the time we fly in 1999. So it was our intent to work with NASA and their intent to work with us to make that happen.
    Chairman ROHRABACHER. Tell me about the costs.
    Mr. RISING. The costs: we, of course, agree with the NASA language which says that we're prepared to pay what is considered to be reasonable and affordable costs, and this is a figure that we'll work with NASA on. And, when that determination is made, we will—we will—of course, pay for that fair share of the——
    Chairman ROHRABACHER. How much higher would the cost be without this?
    Mr. RISING. We're still doing our analysis on that, Mr. Chairman, and we still have a ways to go to determine the specific numbers. And we would like to complete that analysis and provide a written response for the record.
    Chairman ROHRABACHER. Do you have any guess on that?
    Mr. RISING. We think that the cost could be as high as $20 million for coverage to the level that is provided by the government for CSLA for example.
    Chairman ROHRABACHER. Yea, my staff reminded—is reminding me. That's $20 million per flight?

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    Mr. RISING. Yes, that's per flight, yes, sir.
    Chairman ROHRABACHER. That's certainly not a way to bring down the cost of getting into Low-Earth orbit.
    Mr. Lindberg, perhaps you could give me the same summary on the X–34?
    Mr. LINDBERG. Certainly, Mr. Chairman.
    The responsibility as it is laid out in our contract with NASA today, requires that Orbital secure insurance up to a limit—and that limit is specified in our contract: half a billion dollars worth of coverage. And that beyond that coverage, that NASA would seek to indemnify for the unusually hazardous risks beyond that limit.
    The alternative in our contract is that Orbital would then—if we did not have this legislation—would have to go and seek insurance coverage beyond that limit and share that secondary insurance—share the cost of that—with NASA.
    The concern—the primary concern—that we have is that insurance may not be available at all, in which case we would not be able to fly. Or, that insurance may be prohibitively expensive and that it may be too much for Orbital or the government to bear together.
    Chairman ROHRABACHER. Is there any—can we relate this to the airline industry and to developing aircraft?
    Mr. LINDBERG. I don't have the insight into how the airline handles this and so I don't think I can answer that question.
    Chairman ROHRABACHER. Anyone know that answer?
    Mr. RISING. I don't either, sir, I'm sorry.
    Chairman ROHRABACHER. Alright.
    What we're going to do now, I guess is, Mr. Luther, would you have any questions?

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    Mr. LUTHER. Thank you very much, Mr. Chairman.
    One question that I would have, I suppose it would be of NASA, is how does your request to the proposal here—how does that compare with the situation in other agencies? In other words, what kind of precedent do we have for this throughout the Federal Government?
    Ms. EDWARDS. If you're asking—are you asking indemnification or cross-waivers, sir?
    Mr. LUTHER. Well, either or both.
    Ms. EDWARDS. In the indemnification world, there are currently three agencies—well, there are three sources of authority. The first is public law 85–804 that allows NASA, DOD, and quite frankly, other federal agencies to indemnify for ultra-hazardous activities that are related to the national defense.
    The Department of Transportation has been granted authority to indemnify, under its regulatory—under its regulation of the commercial launch industry—for third party-damage above established insurance limits.
    And finally, NASA has authority to indemnify users—currently has authority to indemnify users—of the Shuttle.
    There are other sources of indemnification throughout the government. There are some that are granted directly from Congress, for instance, like the Price-Anderson, which goes to the nuclear industry. And there are other, specified, narrow opportunities which Congress has granted for those activities that are found to be in the public interest. And, if you would like, we could provide you a full listing of those.
    Mr. LUTHER. Mr. Chairman, I think, I think, if we could see—I think perhaps other Committee members would also be interested—if we could see what is out there right now, so that we'd have, kind of, a birds-eye view of what the current status is with respect to other agencies. I think that would be helpful.

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    Now, did I understand then, that the current authority is indemnification authority, or is it the waiver authority also?
    Ms. EDWARDS. NASA has only statutory indemnification authority. The Department of Transportation has both cross-waiver and indemnification authority. And, although there is no requirement for—I believe, speaking for NASA, and I think also for the Department of Defense, when either agency uses the contractual 85–804, there is a waiver in the contract with the contractor. And, on top of that there's indemnification then for third party. But statutorily, I believe the Department of Transportation's authority to waive claims for licenses is the most—offers the best parallel for the cross-waiver authority we're asking for.
    Mr. LUTHER. Okay.
    Mr. Chairman, just to follow-up on that then, I suppose it's helpful when one looks at this issue to determine what the—what the—risk of loss is. In other words, are we talking about, as you say, third party? Are we talking about loss to the contracting parties? Are we talking about other risks of loss in order to kind of analyze where we think the responsibility should be placed?
    One concern I have is with respect to the current—the current status. Assuming that, just under the current state of affairs, if you have a contractor that under the current state of affairs, either doesn't comply with the contractual provision, or is negligent, what is NASA's recourse? What is the recourse of other third parties that might have, for example, have a payload on board? What is the current state of affairs in the typical contract?
    Ms. EDWARDS. May I restate your question, excuse me——
    Mr. LUTHER. Sure.
    Ms. EDWARDS. To make sure I'm answering the question you are asking.

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    Cross-waivers are utilized by NASA in such a way that it does not affect the contractual relationship between us and our contractor. It simply requires, as part of the contract, that contractor agree not to sue another person. So, for instance—I think the best way to do it, is to just give you an example.
    We have a joint international program where we provide a launch and the European Space Agency provides a payload. We want the authority to have—we have the authority to put a cross-waiver in internationally. Which means NASA, and NASA's contractors and subcontractors agree not to sue ESA and ESA's contractors and subcontractors. It is a cross-waiver. It does not affect the performance of our contractors vis-a-vis the contractor who provides the launch. That's set out in the contract between NASA and the contractor. It only affects the right of that contractor to sue or be sued by ESA and its contractors or subcontractors. It's a tort-based cross-waiver. It's not a contract-performance-based cross-waiver.
    Mr. LUTHER. Okay. Well, Mr. Chairman, then do I understand that if it would be determined that there was a breach of contract, then, in that case, there would be recourse by both NASA and by third parties that would be harmed by that breach?
    Ms. EDWARDS. No. If, for instance we had a—I would prefer to discuss it with the mistake on the other side. If an ESA contractor, in designing the spacecraft, incorrectly designed the spacecraft so that it didn't perform, ESA would be free to bring whatever contract action that the contract allowed. NASA would not be free to sue that contractor on the understanding that the cross-waiver would prevent it. Does that answer your question?
    Mr. LUTHER. I think. So the converse of that then——
    Ms. EDWARDS. Would be true.
    Mr. LUTHER. Would be true as well.

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    Okay, well, why don't I pass. This obviously is a very complex situation. And, I think once we see what other agencies are doing, and if we could—maybe it's possible to kind of lay this out in some kind of a diagram or something. Because we are talking about different kinds of risks of loss, and I think how—what public policy should be, would sort of depend on what risk of loss we're talking about. Are we talking about a third party? Are we talking about contracting parties? Are we talking about the agencies themselves? And, so I don't know whether this would be possible either by the Committee or by NASA, but I think it would be helpful if we could get this categorized and then see what the precedent is in other agencies as we try to fashion some kind of a proposal.
    Chairman ROHRABACHER. Do you have something to say about that?
    Ms. EDWARDS. We would be pleased to try and diagram this. I'll go back to my Sister Mary Verona in the third grade, but we could provide it to staff, and then if staff would like to——
    Chairman ROHRABACHER. This is going to be one of those diagrams.
    [Laughter.]
    Ms. EDWARDS. Yes.
    Chairman ROHRABACHER. Mr. Cramer?
    Mr. CRAMER. Well, I want to—Mr. Luther, though, you were headed right in the areas that I wanted to head, and even as a lawyer, this is tough to understand the boundaries and the consequences of where we are. So, Ms. Edwards, if you would bear with me, and keep going on with the kind of illustrations you were giving. I do think it's valuable for you to give us something close to real-life examples here.
    To whom would the cross-waivers not extend? I'm interested in the subcontractors, the suppliers, consultants and others that would be involved in this process.

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    Ms. EDWARDS. As a general rule?
    Mr. CRAMER. Yes.
    Ms. EDWARDS. The cross-waiver that NASA places in its contract requires a flow-down so that all the major subcontractors are covered. The example that we talk about among ourselves is, for instance: if a launch contractor at the Kennedy Space Center had a standing agreement with Pizza Hut to deliver pizza to the launch-site support staff, certainly you wouldn't want to see a cross-waiver in that. But the major contractors and subcontractors who are involved in making the launch happen, we would expect that they would be both waiving claims against our foreign partners and their contractors, and protected from claims by our foreign partners and contractors.
    Mr. CRAMER. Okay. That's helpful to know. And would you—we had some references to Senate Bill 1250 which contains a limited set of indemnification and cross-waiver of liability provisions—would you comment about its strengths or weaknesses and compare and contrast, to a certain extent, that with that we're proposing on this side of the Hill.
    Ms. EDWARDS. Like Dr. Lindberg, NASA is gratified that the Senate Members are willing to grapple with this issue. We have two or three major problems. I will only speak about two.
    The first one is—has to do with the fact that the entire language is linked to just the X–33 and the X–34 program. And, although they are clearly our most immediate—and in terms of the X–34 program, very immediate—needs, the intent of NASA, consistent with Administration guidelines and budget limitations, is to continue the steps we have begun with the X–33 and the X–34 program to work with our industry in these new ways of doing business. This is a very exciting time for NASA and the aerospace industry; a lot of things going on; a lot of new breakthroughs. We want to keep moving in this direction. We really feel as though with this legislation we are going to—with the legislation that, the language we've proposed, we're going—to have the tools necessary to enter into whatever kinds of contractual and other creative relationships to work with our aerospace industry. By the Senate language, by limiting it to the current X programs, puts us in the position of being back here, perhaps in another year, and a year after that, asking for the same authority.

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    In addition to the X programs, we're doing some other, kind of out of the box, kinds of things. One of the things that comes to my mind is we are—our Shuttle contractor U.S.A. is serious about commercializing the Shuttle. And liability issues loom large for that contractor. And if we're going to be successful, if we're going to step back and say, ''We're now ready for the U.S. commercial industry to take over this bird,'' we have to answer those questions.
    And so again, so many things are right on the horizon that, although we welcome the Senate language, we feel like a broader statement, a broader establishment of a liability scheme will simply take that issue off the table and we can deal with many of the other hard issues of making commercial space happen.
    Mr. CRAMER. And that is accomplished by this proposed amendment?
    Ms. EDWARDS. We believe, excuse me, sir. We believe our language—and we've talked quite frankly with our contractors because they have to be comfortable with it too. It's not just NASA. We believe we have enough authority in the language we've proposed to move forward on all these fronts.
    Mr. CRAMER. Alright. Thank you.
    The X–33 and X–34 test-vehicles will not be owned by the government. So, non-commercial—the words non-commercial, the word non-commercial—is used to refer to it because it's a test vehicle. At what point do we need to be worried about when it doesn't become a test vehicle, or parts of it doesn't become a test vehicle?
    Mr. RISING. Want me to answer that one?
    Mr. CRAMER. Sure.
    Mr. RISING. Speaking for the X–33 program: the X–33 is a technology demonstrator. There's no intent for the X–33 to ever perform a commercial mission. It is simply demonstrating technologies that will eventually lead to the development in the next phase of a commercial vehicle. So, it—referring to the gap in the statement that I referred to, the gap—we're talking about a cooperative agreement. We're just asking for the same sort of coverage that's provided to DOD under Public Law 85–804, or under the NASA Space Act, for a traditional contract. It's just the cooperative agreement that has a little different wording, and we're just asking for extension of that coverage to a cooperative agreement.

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    Mr. CRAMER. Dr. Lindberg, anything?
    Mr. LINDBERG. I wouldn't disagree with what Mr. Rising said at all.
    X–34 is being produced under a contract, but the contract essentially is a contract with NASA for Orbital to conduct the research and technology development that NASA desires, and to develop and operate a vehicle to conduct that research. In this sense it departs from the traditional X-planes programs in which the government sought the development of the vehicle and delivery of the vehicle to the government. Rather, the government is looking for the delivery of the research and the technology development product of the work.
    It also—X–34 also—is not a commercial launch system. It's not intended to meet commercial launch objectives. I think the dividing line on one side is that if the vehicle were indeed—if the government indeed took title to the vehicle, then the Space Act would apply. If the—if on the other hand, Orbital was developing the vehicle to conduct commercial launches, then the indemnification and cross-waiver provisions of the Commercial Space Launch Act would apply. We happen to fall into the crack between those two.
    Mr. CRAMER. Thank you, Mr. Chairman.
    Chairman ROHRABACHER. Alright. Roscoe Bartlett, who is our—this Committee's scientist—would like to ask a question.
    Roscoe?
    Mr. BARTLETT. Thank you very much.
    I'm afraid this question isn't related to science. I just had a question about the policy of NASA in working with contractors and working in partnership. The presumption is that when we partner with somebody, that we are sharing a common interest and the goals of the taxpayer are being advanced by this partnership. So I don't see that we have to differentiate in our—in our—policy on indemnification and insurance. Rather, it's a contract or a partnership because in both cases the goals of the taxpayer are being pursued.

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    I gather that there are circumstances under which we require or encourage partners, and perhaps sometimes contractors, to secure insurance. In the case of a contractor, clearly that's a cost of doing business, and they will simply pass that one to the taxpayer. And since the government is bigger than any potential insurance company, I'm wondering why it's not in the best interest of the taxpayers to simply indemnify and self-insure. Whenever you involve an insurance company in this, you're paying for more than just the cost of insurance. You're paying for a large bureaucracy that administers this program. And, why isn't it in the taxpayer's interest to simply indemnify, and in a sense self-insure, rather than pay the additional cost of insurance that would come through an insurance company, since this insurance becomes a part of the cost of doing business and is assuredly passed on to the taxpayer anyhow.
    Ms. EDWARDS. Shall I go?
    I think your comments are especially apt at the places we are in each of these programs. But, one of the Space Act directions to NASA, is that we're to encourage the development of commercial space. NASA is working hard to get itself to the point where it is more of a customer of commercial space, in order—in that way, when we encourage the aerospace underwriters to provide insurance, we move more quickly and more closely to commercial practices. So, how NASA sees it is: at the beginning of a program like this, where commercial insurance simply isn't available, because they're never going to have commercial payloads, it's not meant to be that, that the partnership and the shared U.S. interest absolutely support indemnification. But, as it moves toward becoming a commercial business, NASA feels very strongly that, as outlined in the Commercial Space Launch Act, that we should use commercially reasonable practices, which is available insurance and indemnification only above it.
    So, part of this approach is for NASA to align itself more clearly. That says we take on as the government the risks that cannot be borne by the commercial entity. And as soon as commercial insurance is available, we step back and let commercial practices rule. And that's what we're trying to do here—fill that gap until these gentlemen's companies can develop commercial vehicles that NASA will be able to use as a commercial customer.

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    Mr. BARTLETT. I understand, and that is an appropriate objective, I think. But, as long as taxpayer dollars are going into it—for instance in the X–34 program, we've been paying—the taxpayer has been paying—half of the private insurance. Wouldn't it have been better for us simply to provide half of the insurance? It would have ultimately, on the law of averages, been cheaper for the taxpayer to have provided half of the insurance by self-insuring, rather than paying. If you want them to provide the other half by getting used to going it alone, why that's maybe an okay argument, but I think that in a taxpayer's best interest, that we would be better off to self-insure.
    Ms. EDWARDS. I think you raise a very interesting point. The approach that NASA has—well, there are various ways you can take care of risks. You can mitigate risks by oversight; by putting more people on the contract by the government; or you can mitigate risk by insurance. And each of us in our own private lives make this decision. How much car insurance do I buy? You know, how, so, you come in your own life to a decision: I'm a good enough driver; maybe I don't need a million dollars; it's too expensive.
    I think the government in these times of constrained budgets needs to do the same thing. Clearly, we are involved in these programs. There is NASA oversight. So, therefore, we think it's appropriate that the U.S. taxpayer—because we believe we can provide for the cost of the program oversight. However, it is also true that there are inherent risks. And so, what we do is we work with the contractor, taking into account the cost and availability of insurance, the amount of oversight, how we work with them on risk mitigation, and try, together as partners, to come to a balance of insurance, indemnification, and risk mitigation.
    Our goal—at the very beginning we have a lot of oversight and risk mitigation because it's new technology. Our goal is generally to move toward less government involvement, more reliance on commercial insurance. So it is a continuum, and we work very closely with our partners to find the best mix.

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    Mr. BARTLETT. I thank you. Thank you very much, Mr. Chairman.
    Mr. LINDBERG. Mr. Chairman, if I might provide a point of clarification——
    Chairman ROHRABACHER. Mr. Lindberg, go right ahead.
    Mr. LINDBERG. As a result of Mr. Bartlett's comment.
    Chairman ROHRABACHER. Go right ahead.
    Mr. LINDBERG. I didn't mean to imply by my earlier comment that NASA was indeed now paying for half of the insurance for X–34, but rather that would be the provision of the contract which would apply if the current legislation were not enacted—or the legislation under consideration were not enacted—before the first flight.
    Mr. BARTLETT. But wouldn't your objectives be equally met if NASA simply self-insured, in effect, for half of the insurance that you otherwise would have bough;t rather than the taxpayer paying for half of that insurance. You come out exactly the same, and it seems to me it would be a benefit to the taxpayer.
    The Federal Government is very large. If anybody in this world can self-insure, it ought to be the Federal Government. Many of our large corporations self-insure because they are big enough, and we're a whole lot bigger than any of them still, I hope.
    Mr. LINDBERG. I wouldn't disagree with your comment.
    Mr. BARTLETT. Okay, thank you.
    Chairman ROHRABACHER. And we were just talking about, Roscoe, am I correct here—you're referring to the development stage of this technology? And once we get into a commercial stage and these vehicles are proven technologies, well, then, they operate just like they do in the private sector, receiving their own liability insurance. So that makes a lot of sense.
    Mr. BARTLETT. It makes sense, Mr. Chairman, that when we were purchasing their services that we indemnified them, and in effect, self-insure. We'll do that on average considerably cheaper than requiring them to go to the open market, for insurance, and then adding that to the contract price. Because, that's what you have to do, is add it to the contract price. So I think even then, that there is the possibility of the Federal Government indemnifying them and self-insuring so that we have a lower contract price and we bear the risk of the insurance rather than asking them to do that.

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    Chairman ROHRABACHER. I think Roscoe is making some very good points. And he is hereby appointed to represent the Republican side of the Subcommittee on any further negotiations on this.
    [Laughter.]
    And, Ms. Lofgren?
    Ms. LOFGREN. Thank you, Mr. Chairman.
    One of the phenomena about being towards the end of the questioning is almost all the questions have been asked and answered.
    So, I guess I would just note that really one of the—in lay person terms—things that hasn't been directly stated, I think, is that, really, what is being proposed here—and everybody is for it—is very much in the mainstream of what we've done in the past. I mean, really all the space launch programs—all the commercial space launch programs—enjoy some form of government third-party indemnification. And, I see Ms. Edwards is nodding her head yes. And so, this is really just in keeping with all of that.
    Ms. EDWARDS. Yes.
    Ms. LOFGREN. And, I think that from Lockheed Martin's point of view, this was something you had expected. And, really, it's a glitch, in a way, that brought us here today, and yet something that does need to be addressed because of the way we have restructured our partnerships. And, so, to that extent, it's good to talk about the future, but really, what we need to do is to move this piece of legislation pretty quickly. Everybody agrees, I think, on both sides of the aisle, and everybody else. And so, I'm hopeful, Mr. Chairman, that since there is such broad, I think, agreement on this, that we might get this done, even though we will be adjourning quickly, through some way. So we can get the show on the road.
    And that would be my only comment, and thanks for holding the hearing.
    Chairman ROHRABACHER. That is the intent of the Subcommittee. That's the intent of the Committee. And again, this issue is, as many issues that come before our Science Committee and our Subcommittee on Space and Aeronautics, something that is totally bipartisan. So that's not, you know-partisanship isn't getting in the way.

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    Mr. Davis?
    Mr. DAVIS. Let me start by saying that I associate myself with Ms. Lofgren's remarks in terms of moving this as quickly as we can, and in the Chairman's remarks.
    Let me ask Mr. Lindberg a few questions.
    If you suffered some sort of mishap during flight testing of the X–34 that damages or destroys the vehicle, how would you continue the program, currently? And, are there any plans for additional flight vehicles?
    Mr. LINDBERG. Yes, there are. Right now we are under contract to provide only one vehicle—one test vehicle. But, earlier this year, the NASA program manager convened an independent expert team to evaluate the risk of the program inherent in having only one flight vehicle. That team came back with a strong recommendation that the risk to the overall program in being able to conduct a long series of flights that would address the operational questions that are central to the task at hand, that a second vehicle is a prudent next step, and is consistent with the success of—the remarkable success of—earlier programs such as the X–15.
    We are—NASA, as a result of that, requested that we prepare a proposal for a second vehicle, and we did submit that proposal. We were in negotiations through August of this year for that vehicle. Those negotiations were suspended for a period of time due to uncertainties in the Fiscal Year 1999 and out-year budgets, and, have only recently resumed.
    Mr. DAVIS. Okay. It's my understanding that your contract with NASA only provides for the X–34 to only be flown twice?
    Mr. LINDBERG. That's correct.
    Mr. DAVIS. Are there any provisions for additional missions after you conduct these two flights?
    Mr. LINDBERG. There is a provision for additional missions. There is an option that is currently unexercised on the contract to provide an additional 25 flights and, indeed, the 25 flights are necessary to answer the questions that we want to ask, both operationally and from a performance standpoint, in being able to eventually achieve a Mach 8 flight trajectory, and be able, eventually, to achieve 250,000 feet, both of which are goals for the program.

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    With only two flights, we won't achieve those objectives, nor will we achieve the objective of understanding how to drive out the cost and the labor associated with processing such a vehicle between flights.
    Mr. DAVIS. You know, it's my understanding that even though the White House hasn't provided us with the out-year budgets as yet, that the RLV program may be scaled back significantly. How would cuts in funding the RLV impact the X–34 program?
    Mr. LINDBERG. Of course, we don't have insight into what NASA provided OMB earlier this fall, except we—it had been reported that the RLV program had been reduced, or potentially zeroed in 1999 to try and reach the overall budget objectives for NASA in the out-years.
    If X–34 were zeroed in 1999 and 2000, no. 1: we would not be able to proceed with the fabrication of a second vehicle and indeed, we suspended negotiations for a time, recently, because of that prospect. Those negotiations are back on now, but the vehicle will now become a negotiated option on the contract, rather than a firm exercise at this point in time. And, certainly, we wouldn't be able to fly the 25 flights.
    Mr. DAVIS. Just one last question. To reach Mach 8, I understand the X–34 will have to fly about 500 miles?
    Mr. LINDBERG. Yes.
    Mr. DAVIS. The White Sands missile range, I don't think, is big enough for a flight that long. What provisions have to be made before the X–34 could conduct a Mach 8 flight?
    Mr. LINDBERG. We can fly about 100 miles over the White Sands missile range and be entirely within the White Sands missile range-controlled air space. That would achieve about a Mach 3 flight.
    There are two possibilities for flying Mach 8: one is to open an off-range corridor, perhaps from Utah with an air launch over Utah down into Holliman Air Force Base, contiguous with White Sands; or from California, likewise, into Holliman Air Force Base. To do so, we'd have to pursue an environmental impact study similar to the one that has just been concluded on X–33. The other possibility is to conduct flights off the east coast and fly a trajectory that would land at Kennedy Space Center. If we had two vehicles, there is a scenario in which we would be able to operate a first vehicle at White Sands on a frequent basis, addressing the operational questions, and do the high performance missions, perhaps, over the eastern test range flying into KFC, and operate one vehicle in each location.

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    Mr. DAVIS. Okay. And then my last question, I guess for everybody, is of all the elements in NASA's proposed language which are not in the Senate's language, what is the highest priority for addition? Ms. Edwards, do you have any——
    Ms. EDWARDS. Oh, I'm sorry, I thought you were still—I apologize.
    Mr. DAVIS. For everybody—it's kind of for everybody.
    Ms. EDWARDS. NASA feels very strongly that this authority needs to be broad enough for us to respond to what we think are going to be many industry proposals in the area of X-vehicles. We also—that is both indemnification and cross-waiver.
    We also think that other activities that we have under place, including a commercialization of the Shuttle, will require this kind of authority, at least initially, until the Shuttle is considered a commercial vehicle. And, we think the broadening of the Senate language, which would then bring it to what we have proposed, is the total package. And we think we need it all.
    Mr. DAVIS. Okay.
    Mr. RISING. I agree with Ms. Edwards' statement. It's hard to prioritize between cross-waivers and indemnification. We believe that they're both equally important and need to be passed.
    Mr. LINDBERG. I think clearly, Ms. Edwards' first point is an important one, and that is it would be important for us to seek a broadening of the language to cover future X-vehicles. However, it's Orbital's position that if such a broadening of the language would threaten the possibility of passage of this legislation in this session, we would not support the broadening of the language.
    Mr. DAVIS. You need something right away?
    Mr. LINDBERG. We intend to fly in December of 1998, and so, we need something in this legislative session.

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    Mr. DAVIS. Alright, thank you, Mr. Chairman. I yield back.
    Chairman ROHRABACHER. Mr. Salmon?
    Mr. SALMON. Thank you, Mr. Chairman.
    I just have a couple of quick questions. First of all, I think it would probably be best addressed to you, Mr. Lindberg, if you could address it? What's the role of cross-waiver authority for the X–34 program? And, does the contract signed between NASA and Orbital Sciences include a cross-waiver of liability?
    Mr. LINDBERG. If you'll let me consult with our legal staff for a moment?
    It's my understanding that we do not have a provision for cross-waiver liability at this point in the contract, but that would be part of the indemnification if this language—if this legislation—were secured.
    Mr. SALMON. Okay.
    Ms. Edwards, do you have any thoughts on that as far as where NASA stands? Would they be supportive, generally speaking, of the language that we're talking about? I know you may have already addressed this and I apologize if you have.
    Ms. EDWARDS. The language that we are testifying to, the language that NASA submitted, is very important to us. Again, the cross-waiver, in its classic forms, does not necessarily—does not define the relationship between NASA and a contractor like OSC. But, a cross-waiver in terms of when we offer indemnification, often becomes important in making sure that the U.S. taxpayer is only available to address extraordinary third-party claims.
    So, I agree with Mr. Lindberg, I do not believe they have it. But if we are to move forward with this allocation scheme, the authority to craft cross-waivers indemnification for particular programs like the X–33 and the X–34 together will be very important.

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    Mr. SALMON. Thank you. I have one question.
    The Senate's provisions have a sunset clause, I understand. What's the potential impact of this temporary authority for NASA on the long-term use of the X–33 and the X–34 as flying test-beds?
    Ms. EDWARDS. I'd like Mr. Rising to answer that.
    Mr. RISING. Well, I think, if I remember the language, the sunset clause extends out to 2002, 2003. Is that correct?
    Currently the X–33 program as structured, is—will conclude at the end of 1999, probably; at the latest, Year 2000. And, beyond that, I guess, I'd like to talk to my legal staff and provide a more complete answer for the record at a later date, if I could?
    Mr. SALMON. I'd appreciate that.
    Mr. RISING. Okay.
    Mr. SALMON. Thank you. I have no more questions, Mr. Chairman.
    Chairman ROHRABACHER. Mr. Cramer, you had something that you wanted to submit for the record?
    Mr. CRAMER. I wanted to submit—I'd ask unanimous consent that Boeing's response to your letter commenting about this authorization process, be made part of the record.
    Chairman ROHRABACHER. Without objection.
    It will become part of the record.
    Anything else, Mr. Cramer.
    Mr. CRAMER. No, I just would like also to be able to submit questions for the record.
    Chairman ROHRABACHER. That will be true of all of the members of the Subcommittee. The panel may receive these written questions and we would hope that you would respond in a timely manner.

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    I have a couple more questions, and then we will adjourn, unless there are other questions on the Subcommittee.
    For Mr. Rising, is the indemnification authority provided in S. 1250 sufficient for the X–33 program, as currently defined, and if not, what additional language is necessary, short of NASA's full proposal?
    Mr. RISING. We prefer the NASA language because we believe it provides a simpler and clearer authority to NASA for implementation of the measures. It appears a new process would have to be put in place to implement the various provisions of the Senate language. And, with regard to some of the elements of the Senate language, for example, safety of flight: we're currently working with NASA and the Air Force to ensure safety of flight. And the other provisions, we would like to take a little more time to study and provide a more detailed answer for the record.
    Chairman ROHRABACHER. If—we'd like that as soon as possible, and if there is some disagreement there——
    Ms. Edwards, the X–33 and X–34 developers will receive commercial benefit from their participation in those programs. Why shouldn't the Senate provision be crafted as narrowly as possible?
    Ms. EDWARDS. We hope they receive commercial benefit. You know, our great wish, is for a full-scale RLV that significantly reduces cost of pounds to orbit. But, at this stage, both of these programs are technology demonstrators and, quite frankly, the U.S. taxpayer is getting a tremendous benefit because there are applications that are coming out of these programs that are broader than these two companies or contractors. And so, the commercial benefit that will flow from these is in fact much broader in terms of materials, in terms of processes that can be used by a variety of people, not just these two particular companies.

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    And, that's why, I think, that we believe strongly that an equitable sharing of the risk and liability is consistent with the equitable sharing of the cost of this program.
    Chairman ROHRABACHER. Alright. One last question, when NASA asked for its original section 308 authority, it testified that its management of the Space Shuttle program gave it sufficient insight to be able to minimize the likelihood of third-party damages. Some Members of the Senate are concerned that the cooperative agreement mechanism does not allow NASA sufficient authority to ensure a similar level of public safety. And how would you respond to that?
    Ms. EDWARDS. Well, I don't want to put my fellow witnesses on the hot seat, but I think if you talk to them informally, they would tell you that in these experimental programs, NASA's oversight is present, it's constant, and we hope, supportive. We hope by working in this cooperative way, we will have sufficient oversight. We know we will have sufficient oversight into the technologies.
    To tell you the truth, NASA doesn't have, nor should it have, much insight into commercial operations. But, what we should have, and what we will have, is knowledge of how these technologies work; where their limits are. And so we feel very confident that in 20 years, again, if we need to talk to you about this subject, we'll be able to say, as we did today, ''Now, in the more the 40 years since you gave us this authority, there has never been an indemnification claim made.''
    Chairman ROHRABACHER. Let's keep our fingers crossed that that's an accurate prediction.
    Does anyone else on the Subcommittee have any questions?
    I'd like to thank the members of the panel. We appreciate you coming here today.

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    Just a note that this Chairman, and I'm sure this is shared by other members of this Subcommittee, support your efforts. We wish you luck and success. You're, you know, you're expanding the envelope, here, and we're excited about that. We're excited that if you are successful, America will be the preeminent space power in the world in our lifetime—for the rest of our lifetime. What a terrific thing to think about, that you're building that great future for our children. So, good luck.
    And, we talked about legal hurdles today, you're trying to go through the technological hurdles, and we wish you luck in that. We're going to do our best to make sure that there aren't any legal hurdles that you have to jump over as well.
    Ms. JACKSON LEE. Mr. Chairman?
    Chairman ROHRABACHER. Ms. Jackson Lee, you got here—just because I was being so verbose.
    [Laughter.]
    Ms. JACKSON LEE. They called me.
    [Laughter.]
    Chairman ROHRABACHER. Ms. Jackson Lee, if you have any questions, please feel free to precede. Or a statement?
    Ms. JACKSON LEE. I thank the Chairman. I would ask unanimous consent to have my statement submitted for the record and apologize to the witnesses for my delay because of a hearing of the Crime Subcommittee.
    But, I wanted to come and acknowledge the key elements of this hearing and to offer to say that if we are to begin talking seriously about commercialization and other aspects, that we will need to look at the legal ramifications. And so, as a member of the Judiciary Committee, I'm right at home here and will look forward to continuing to review this issue and working with the Science Committee on these questions of great importance to make sure that our industry can thrive.

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    Thank you, and I yield back.
    Chairman ROHRABACHER. Ms. Jackson Lee is an active member of this Subcommittee, as well as her other Committee, so we appreciate that she took the time to rush down here to make sure her voice was heard on this issue. So, we appreciate that, and thank you all very much.
    This Subcommittee is adjourned.
    [Whereupon, at 11:51 a.m., the hearing was adjourned.]

46–635CC

1997

INDEMNIFICATION AND CROSS-WAIVER AUTHORITY

HEARING

BEFORE THE

SUBCOMMITTEE ON SPACE AND AERONAUTICS

OF THE
COMMITTEE ON SCIENCE

U.S. HOUSE OF REPRESENTATIVES

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ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

OCTOBER 30, 1997

[No. XX]

Printed for the use of the Committee on Science

COMMITTEE ON SCIENCE

F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
SHERWOOD L. BOEHLERT, New York
HARRIS W. FAWELL, Illinois
CONSTANCE A. MORELLA, Maryland
CURT WELDON, Pennsylvania
DANA ROHRABACHER, California
STEVEN SCHIFF, New Mexico
JOE BARTON, Texas
KEN CALVERT, California
ROSCOE G. BARTLETT, Maryland
VERNON J. EHLERS, Michigan**
DAVE WELDON, Florida
MATT SALMON, Arizona

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THOMAS M. DAVIS, Virginia
GIL GUTKNECHT, Minnesota
MARK FOLEY, Florida
THOMAS W. EWING, Illinois
CHARLES W. ''CHIP'' PICKERING, Mississippi
CHRIS CANNON, Utah
KEVIN BRADY, Texas
MERRILL COOK, Utah
PHIL ENGLISH, Pennsylvania
GEORGE R. NETHERCUTT, JR., Washington
TOM A. COBURN, Oklahoma
PETE SESSIONS, Texas

GEORGE E. BROWN, Jr., California RMM*
RALPH M. HALL, Texas
BART GORDON, Tennessee
JAMES A. TRAFICANT, Jr., Ohio
TIM ROEMER, Indiana
ROBERT E. ''BUD'' CRAMER, Jr., Alabama
JAMES A. BARCIA, Michigan
PAUL McHALE, Pennsylvania
EDDIE BERNICE JOHNSON, Texas
ALCEE L. HASTINGS, Florida
LYNN N. RIVERS, Michigan
ZOE LOFGREN, California

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LLOYD DOGGETT, Texas
MICHAEL F. DOYLE, Pennsylvania
SHEILA JACKSON LEE, Texas
BILL LUTHER, Minnesota
WALTER H. CAPPS, California
DEBBIE STABENOW, Michigan
BOB ETHERIDGE, North Carolina
NICK LAMPSON, Texas
DARLENE HOOLEY, Oregon

TODD R. SCHULTZ, Chief of Staff
BARRY C. BERINGER, Chief Counsel
PATRICIA S. SCHWARTZ, Chief Clerk/Administrator
VIVIAN A. TESSIERI, Legislative Clerk
ROBERT E. PALMER, Democratic Staff Director

Subcommittee on Space and Aeronautics
DANA ROHRABACHER, California, Chairman
JOE BARTON, Texas
KEN CALVERT, California
ROSCOE G. BARTLETT, Maryland
DAVE WELDON, Florida
MATT SALMON, Arizona
THOMAS M. DAVIS, Virginia
MARK FOLEY, Florida

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CHARLES W. ''CHIP'' PICKERING, Mississippi
CHRIS CANNON, Utah
KEVIN BRADY, Texas
MERRILL COOK, Utah
GEORGE R. NETHERCUTT, JR., Washington

ROBERT E. ''BUD'' CRAMER, Jr., Alabama
RALPH M. HALL, Texas
JAMES A. TRAFICANT, Jr., Ohio
ALCEE L. HASTINGS, Florida
SHEILA JACKSON LEE, Texas
BILL LUTHER, Minnesota
ZOE LOFGREN, California
WALTER H. CAPPS, California
NICK LAMPSON, Texas
BART GORDON, Tennessee

*Ranking Minority Member
**Vice Chairman
(ii)

C O N T E N T S

October 30, 1997:
June Edwards, Associate General Counsel, NASA

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Jerry Rising, Vice President, Reusable Launch Vehicles, Lockheed Martin Aeronautics Sector
Robert Lindberg, Vice President, X–34 Program, Orbital Sciences Corporation
(iii)