Is Indemnification a Barrier to Public-Private Partnerships? (Revision 1)
Abstract
The Department of Defense has designated public-private partnerships for depot maintenance as a key maintenance and logistics enabler to improve operational readiness and reduce the costs of weapon systems. During management forums and through other means since partnerships started to form in 1994, some private firms have expressed reservations about partnering with a government maintenance depot because of the requirement that they indemnify the government contracting activity for any loss or damages the private firms might incur. Until 2001, a federal statute allowed private firms to pursue damage claims against a government depot only if a loss was caused by willfull misconduct or gross negligence. Further, legislation passed in December 2001 allowed private firms, in certain partnership situations, to recoup losses caused by the "failure of the Government to comply with quality, schedule, or cost performance requirements in the contract." But that expanded language did not fully satisfy industry concerns. Subsequently, the Assistant Deputy Under Secretary of Defense for Logistics and Materiel Readiness (Maintenance Policy, Programs, and Resources) tasked LMI to study this issue, compare the current state of affairs with standard commercial practice, and determine the effect of the legislative change on the willingness of private firms to enter into public-private partnerships. The author's overall conclusion is that current indemnification requirements are at most a low-level concern, and they pose no barrier to the growth of public-private partnerships. The findings in this paper stem from research into contract language both before and after the legislative change in December 2001 and interviews with members of the Product Support Committee of the Aerospace Industries Association (AIA), members of the Defense Contract Management Agency (DCMA), and legal prolessionals.
Document Details
- Document Type
- Technical Report
- Publication Date
- Apr 01, 2004
- Accession Number
- ADA489188
Entities
People
- Eric F. Herzberg
Organizations
- LMI