1. SHAPING RISK INTO REWARD IN DYNAMIC TIMES Emerging Issues in Contract
Risk Management
Larry Lohman, Associate General Counsel and Vice President, Contracts and Legal Brad Rush, Managing Counsel Harris Corporation March 12, 2014

2. WHY RISK MANAGEMENT
Legal and regulatory pressures – from cybersecurity to flawless performance
Pressures on Buyers and Sellers to “do more with less”
Pressure on Buyer to get more value and better quality at the same or lower cost
Pressure on Seller to get more business faster with higher profit margins

3. Federal Procurement Spending

4. Areas of Concern Venue/Choice of Law Limitation of Liability Indemnity
IP/Infringement
Warranty
Inspection/Acceptance

5. Venue/Choice of Law
The Purchase Order, and any disputes related hereto, shall be governed by and interpreted in accordance with the laws of the State of Florida, USA, regardless of any conflict of law principles requiring the application of any other law. The Convention of the International Sale of Goods shall not apply to this PO notwithstanding the foregoing any provision of this PO that incorporates in text or by reference a provision of the FAR or DFARS shall be construed and interpreted according to the federal common law of government contracts, as interpreted by federal judicial bodies, boards of contracts appeals, and other quasi-judicial agencies of the federal government.

6. Limitation of Liability
CLAUSE ONE:
LIMITATION OF LIABILITY:
EXCEPT FOR INTENTIONAL TORTS, WILLFUL MISCONDUCT, AND INDEMNIFICATIONS FOR BREACHES OF LAW OR CONFIDENTIALITY SPECIFICALLY SET FORTH ABOVE,   IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF PROFITS, OR BUSINESS INTERRUPTION) ARISING OUT OF THE USE OF OR INABILITY TO USE ANY PRODUCT, EQUIPMENT OR ASSOCIATED SOFTWARE DESCRIBED HEREIN EITHER SEPARATELY OR IN COMBINATION WITH ANY OTHER PRODUCT, EQUIPMENT, SOFTWARE OR OTHER MATERIALS EVEN IF SELLER HAS BEEN ADVISED OF THE POSSIBILITY OR CERTAINTY OF SUCH DAMAGES AND SELLER’S TOTAL AGGREGATE LIABILITY HEREUNDER WHETHER BASED UPON CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHERWISE, SHALL IN NO EVENT EXCEED THE TOTAL AGGREGATE VALUE OF THIS BASIC ORDERING AGREEMENT  

7. Limitation of Liability
CLAUSE TWO:
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY, THEIR EMPLOYEES, AGENTS, OR REPRESENTATIVES RELATING TO ANY ACTS OR OMISSIONS OF EITHER PARTY IN CONNECTION WITH THE PURCHASE ORDER FOR ANY, INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL DAMAGES OF ANY KIND, ARISING OUT OF OR IN CONNECTION WITH THIS PURCHASE ORDER, HOWEVER CAUSED, OR ANY CLAIMS OR DEMANDS AGAINST EITHER PARTY BY ANY OTHER ENTITY, WHETHER SUCH REMEDY IS SOUGHT IN CONTRACT, TORT INCLUDING WITHOUT LIMITATION NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, EXCEPT AS LIMITED BY LAW, ALL CLAIMS UNDER LAW OR IN EQUITY OR OTHERWISE ARE SUBJECT TO THIS CLAUSE.
THE AGGREGATE CUMULATIVE TOTAL LIABILITY FOR WHICH SELLER IS OBLIGATED TO PAY Buyer HEREUNDER, WHICH IS Buyer’ EXCLUSIVE REMEDY AND IS IN FULL SATISFACTION OF ALL LIABILITY, WHETHER FOR BREACH OF WARRANTY OR CONTRACT, INDEMNIFICATIONS HEREIN, TORT (INCLUDING NEGLIGENCE), COUNTERFEIT PARTS, REPROCUREMENT, STRICT LIABILITY, OR OTHERWISE, SHALL BE LIMITED TO SELLER’S ACTS OR OMISSIONS WHICH ARE BOTH ITS FAULT AND WHICH DIRECTLY CAUSED THE LOSSD. , Buyer SHALL HAVE THE RIGHT TO MITIGATE ALL DAMAGES.  .
IN NO EVENT SHALL SELLER BE LIABLE FOR ANY CLAIM OR DAMAGES ARISING OUT OF AN EVENT, WHICH IS CAUSED OR CONTRIBUTED TO BY THE WORK, AND SUCH EVENT OCCURS AFTER THE COMMENCEMENT OF THE LAUNCH PROCEDURE OF THE SATELLITE CARRYING SUCH GOODS INTO SPACE.
“LIABILITY” FOR PURPOSES OF THIS AGREEMENT MEANS ANY LIABILITY WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), BREACH OF STATUTORY DUTY, RESTITUTION OR OTHERWISE IN RESPECT OF ANY LOSS OR DAMAGE HOWSOEVER CAUSED, AND INCLUDING WITHOUT PREJUDICE TO THE GENERALITY OF THE FOREGOING ANY LIABILITY OF SELLER ARISING UNDER ANY INDEMNITY. BUYER SHALL HAVE THE OBLIGATION TO MITIGATE ALL LIABILITIES.
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, SELLER DOES NOT EXCLUDE OR LIMIT ITS LIABILITIY (IF ANY) TO Buyer FOR: (I) DEATH OR PERSONAL INJURY RESULTING FROM SELLER’S NEGLIGENCE; (II) ANY MATTER FOR WHICH IT WOULD BE ILLEGAL FOR SELLER TO EXCLUDE OR LIMIT ITS LIABILITY; OR (III) FRAUD.

8. Limitation of Liability
Definition of Direct Damages:  For the purposes of this Article, in addition to any other amounts that may qualify as direct damages as a matter of law or equity, commercially reasonable costs associated with any of the following shall be treated as direct damages, and not as special, incidental or consequential damages: (1) inspecting, assessing, accessing, and removing any installed defective or nonconforming Goods; (2) repairing or replacing, and reinstalling the defective or nonconforming Goods with non-defective or conforming Goods; (3) inspecting, assessing, repairing and re-installing surrounding structures; (4) assembly process sequence work-arounds for defective or nonconforming Goods; and (5) re-qualifications and coordinating with Buyer’s customer on resulting inspections and re-qualifications.
Special and Consequential Damages:  Except for the provisions of Paragraph (c) (No Disclaimer or Limitation of Liability), neither Party shall be liable to the other Party for indirect, incidental, special, exemplary, consequential or punitive damages, or loss of revenue or profit in connection with the performance of this contract or related to the use of any items delivered or services furnished under this Contract.
No Disclaimer or Limitation of Liability:  Notwithstanding the limitation in Paragraph (b) (Special and Consequential Damages) and Paragraph (d) (Cap on Remaining Liability) herein, nothing in this Article or contract shall waive, release, limit or disclaim liability or damages (including direct damages) regarding the following:
The rights and remedies arising under or provided in Article 19 (Patent, Trademark and Copyright Indemnity), Article 20 (Confidential, Proprietary and Trade Secret Information and materials) and Article 15 (Cancellation for Default).
Buyer’s excess reprocurement costs under the Contract.
Claims arising out of a Party’s acts or omissions constituting malfeasance, intentional misconduct, or fraud.
Claims by one Party against the other Party for contractual indemnity or contribution toward bodily injury, death, or damage to or loss of third-party real or tangible personal property.
Cap on Remaining Liability:  Except for the provisions of Paragraph (c) (No Disclaimer or Limitation of Liability) above, in no event shall Seller’s total liability for damages to Buyer exceed XX percent (XX%) of the actual contract value under this Contract. 

9. IP Infringement CLAUSE ONE:
Seller shall indemnify, defend, and hold harmless, Buyer and Buyer‘s Customer and their respective officers, directors, agents, and employees against Losses for any allegation of or suit or action for infringement of any United States or foreign patent, copyright, trademark, or other intellectual property right arising out of the performance of Work under the Purchase Order or out of the use or disposal of such Work by or for the account of Buyer. Seller shall at its own expense either procure for Buyer or for Buyer and Buyer‘s Customer, as Buyer shall require in its sole discretion, the right to continue using the alleged infringing Work, replace it with non-infringing Work, or modify Work so that it becomes non-infringing. The foregoing indemnity shall not apply unless Buyer or Buyer‘s Customer informs Seller of the suit or action or other proceeding alleging infringement and gives Seller the opportunity as is afforded by applicable laws, rules, or regulations, to participate in the defense thereof.

10. IP Infringement CLAUSE TWO:
Seller shall indemnify, defend, and hold harmless, Buyer and Buyer's Customer and their respective officers, directors, agents, and employees against Losses for any allegation of or suit or action for infringement of any United States or foreign patent, copyright, trademark, or other intellectual property right arising out of the performance of Work under the Purchase Order or out of the use or disposal of such Work by or for the account of Buyer. Seller shall indemnify Buyer for such infringement actions provided that (1) Buyer shall give Seller prompt written notice of any action, claim or threat of patent infringement suit, either oral or written, or of the commencement of any patent infringement suit against Buyer relating to products sold by Seller to Buyer hereunder; and (2) Buyer shall give Seller the opportunity to elect to take over, settle or defend any such claim, action or suit through counsel of Seller’s own choice and under its sole direction, and at its sole expense; and (3) Buyer, in the event Seller elects to take over, defend or settle such, will make available to Seller all defenses known by or available to Buyer, and (4) Seller shall have the right to substitute for any such product or any part thereof claiming to infringe the patent rights of others, non-infringing products which will give equally good service. If the use of any such product or any part thereof should be enjoined, Seller shall at its own expense either procure for Buyer or for Buyer and Buyer‘s Customer, as Buyer shall require in its sole discretion, the right to continue using the alleged infringing Work, replace it with non-infringing Work, modify Work so that it becomes non-infringing or remove said product and refund the purchase price and the transportation and installation costs thereof. The foregoing indemnity shall not apply unless Buyer or Buyer‘s Customer informs Seller of the suit or action or other proceeding alleging infringement and gives Seller the opportunity as is afforded by applicable laws, rules, or regulations, to participate in the defense thereof. Seller’s foregoing infringement indemnification of Buyer shall not apply to any of the following: (1) To any products manufactured to the design or specifications furnished by Buyer. (2) To Orders for special non-commercial products which Seller has not sold or offered for sale to the public on the open commercial market. (3) To any infringement occasioned by modification by Buyer for any product without Seller’s written consent, or any infringement caused solely by Buyer’ combination of any product with another device
To the extent that products delivered hereunder are manufactured pursuant to designs furnished by Buyer, Buyer agrees to indemnify Seller and hold Seller harmless from all legal expenses which may be incurred as well as all damages and costs which may finally be assessed against Seller in any action for infringement of any such products delivered hereunder. Seller agrees promptly to inform Buyer of any claim for liability made against Seller with respect to such products and Seller agrees to cooperate with Buyer in every way reasonably available to facilitate the defense against any such claim.

11. IP Infringement CLAUSE THREE:
Buyer will defend and indemnify the Customer against any third-party claim that any equipment or software furnished under this agreement infringes a patent, copyright, trademark, or trade secret of a third party.  If any equipment or software furnished under this agreement is, or in Buyer’ sole opinion is likely to be, held to be infringing, Buyer will, at its expense and option either, (i) procure the right for the Customer to continue using such equipment and/or software, (ii) modify the equipment and/or software to make it non-infringing, or (iii) accept return of the equipment and/or software and replace the same with substantially equivalent non-infringing equipment and software.  If Buyer is unable to reasonably accomplish one of the foregoing, Buyer may then direct the return of the offending portion of the equipment and/or software and provide to the Customer a pro-rata refund of the original purchase price for such portion of the equipment and/or software.  Buyer will have no obligation to indemnify the Customer, however, if the claim of infringement is caused by (i) any equipment and/or software manufactured to specifications furnished by the Customer or on the Customer’s behalf, or in accordance with industry standards, (ii) the Customer’s failure to use corrections or enhancements made available by Buyer, (iii) a combination of the equipment and/or software furnished under this agreement with any equipment or software not furnished under this agreement, (iv) the use of such equipment and/or software in a manner not normally intended by Buyer, (v) equipment or software furnished under this Agreement that is to be delivered to the United States Government, unless Buyer’s contract with the Government for the product obligates the Customer to provide indemnification to the Government for intellectual property rights infringement, but in that event, only to the same extent as Customer’s obligation, or (vi) any patent, copyright, trademark or trade secret in which the Customer, or any of the Customer’s affiliates has a direct or indirect interest. 
To receive the foregoing indemnity, Customer shall have made all payments then due must notify Buyer other in writing of a claim or suit promptly and provide it with reasonable cooperation (at Buyer’s expense) and full authority to defend or settle the claim or suit.  Buyer will not have any obligation to indemnify the Customer for any settlement made without Buyer’ written consent.
THE FOREGOING REMEDIES CONSTITUTE THE CUSTOMER’S SOLE AND EXCLUSIVE REMEDIES AND BUYER’S ENTIRE LIABILITY WITH RESPECT TO INFRINGEMENT.

12. Warranty
CLAUSE ONE:
Seller warrants to Buyer that for a period of [NUMBER] months from the Delivery Date, all Goods will: (a) be free from any defects in workmanship, material and design; (b) conform to applicable specifications[, drawings, designs, samples and other requirements specified by Buyer]; (c) be fit for their intended purpose and operate as intended; (d) be merchantable; (e) be free and clear of all liens, security interests or other encumbrances; and (f) not infringe or misappropriate any third party's patent or other intellectual property rights. These warranties survive any delivery, inspection, acceptance or payment of or for the Goods by Buyer. These warranties are cumulative and in addition to any other warranty provided by law or equity. Any applicable statute of limitations runs from the date of Buyer's discovery of the noncompliance of the Goods with the foregoing warranties. [If Buyer gives Seller notice of noncompliance with this Section, Seller shall, at its own cost and expense, [promptly/within [NUMBER] days] replace or repair the defective or nonconforming Goods and pay for all related expenses, including, but not limited to, transportation charges for the return of the defective or nonconforming goods to Seller and the delivery of repaired or replacement Goods to Buyer.]

13. Warranty
CLAUSE TWO:
Limited Warranty:
[Seller warrants to Buyer that for a period of [NUMBER] [month[s]/years[s]] from the date of shipment of the Goods ("Warranty Period"), that such Goods [will [materially] conform to [the specifications set forth in Exhibit A/Seller's published specifications in effect as of the date of [manufacture/shipment under the corresponding Individual Transaction]] [[and] will be free from [material] defects in material and workmanship].]
[EXCEPT FOR THE WARRANTY SET FORTH IN SECTION 11(A),] SELLER MAKES NO WARRANTY WHATSOEVER WITH RESPECT TO THE GOODS, INCLUDING ANY (a) WARRANTY OF MERCHANTABILITY; [OR] (b) WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE; [OR (c) WARRANTY OF TITLE;] [OR (d) WARRANTY AGAINST INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS OF A THIRD PARTY;] WHETHER EXPRESS OR IMPLIED BY LAW, COURSE OF DEALING, COURSE OF PERFORMANCE, USAGE OF TRADE OR OTHERWISE.
[Products manufactured by a third party ("Third Party Product") may constitute, contain, be contained in, incorporated into, attached to or packaged together with, the Goods. Third Party Products are not covered by the warranty in Section 11(a). For the avoidance of doubt, SELLER MAKES NO REPRESENTATIONS OR WARRANTIES WITH RESPECT TO ANY THIRD PARTY PRODUCT, INCLUDING ANY (a) WARRANTY OF MERCHANTABILITY; (b) WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE; (c) WARRANTY OF TITLE; OR (d) WARRANTY AGAINST INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS OF A THIRD PARTY; WHETHER EXPRESS OR IMPLIED BY LAW, COURSE OF DEALING, COURSE OF PERFORMANCE, USAGE OF TRADE OR OTHERWISE.]
[The Seller shall not be liable for a breach of the warranty set forth in Section 11(a) unless: (i) Buyer gives written notice of the defect, reasonably described, to Seller within [NUMBER] days of the time when Buyer discovers or ought to have discovered the defect; (ii) Seller is given a reasonable opportunity after receiving the notice to examine such Goods and Buyer (if requested to do so by Seller) returns such Goods to Seller's place of business at Seller's cost for the examination to take place there; and (iii) Seller reasonably verifies Buyer's claim that the Goods are defective.]
[The Seller shall not be liable for a breach of the warranty set forth in Section 11(a) if: (i) Buyer makes any further use of such Goods after giving such notice; (ii) the defect arises because Buyer failed to follow Seller's oral or written instructions as to the storage, installation, commissioning, use or maintenance of the Goods; or (iii) Buyer alters or repairs such Goods without the prior written consent of Seller.]
[Subject to Section 11(d) and Section 11(e) above, with respect to any such Goods during the Warranty Period, Seller shall, in its sole discretion, either: (i) repair or replace such Goods (or the defective part) or (ii) credit or refund the price of such Goods at the pro rata contract rate provided that, if Seller so requests, Buyer shall, at Seller's expense, return such Goods to Seller.]
[THE REMEDIES SET FORTH IN SECTION 11(F) SHALL BE THE BUYER'S SOLE AND EXCLUSIVE REMEDY AND SELLER'S ENTIRE LIABILITY FOR ANY BREACH OF THE LIMITED WARRANTY SET FORTH IN SECTION 11(A). ]

14. Inspection/Acceptance
CLAUSE ONE:
All work under this Purchase Order shall be subject to inspection and test by Buyer and/or Buyer’s customer, to the extent practicable at all times and places during the period of performance, and in any event prior to final acceptance. Seller shall provide and maintain an inspection system acceptable to Buyer and the Government covering all work hereunder. Buyer and Buyer’s customer, through any authorized representative, may inspect the plant or plants of Seller or any of its Subcontractors or lower-tier Subcontractors hereunder. If any inspection or test is made by Buyer or Buyer’s customer on the premises of Seller or its Subcontractors or lower-tier Subcontractors, Seller shall provide and shall require such Subcontractors to provide all reasonable facilities and assistance for the safety and convenience of the inspectors in the performance of their inspection duties. All inspections and tests shall be performed in such manner as shall not unduly delay the work. Final inspection and acceptance by Buyer shall be made as promptly as practicable after delivery. The time and place of delivery, final inspection, and acceptance shall be as set forth in the Purchase Order.
Seller warrants that the supplies and services used or delivered in performance of the Purchase Order will conform to the applicable drawings, specifications, or other requirements of this Purchase Order, that the supplies delivered hereunder will be free of defects in design material, and workmanship, and that the services provided hereunder will be performed in a workmanlike manner and to the highest standards of the industry.
At any time during performance of this Purchase Order, and for a period of twelve (12) months after the date of final acceptance of all articles and services called hereunder, Buyer may require Seller to remedy by correction or replacement, as directed by Buyer, any failure by Seller to comply with its obligations under Paragraph b. hereof. Regardless of the allowability of replacement or correction costs, Seller shall be paid no additional fee for such costs. Corrected articles shall not be tendered thereafter for acceptance unless the former requirement of correction is disclosed. If Seller fails to proceed with reasonable promptness to perform such replacement or correction, Buyer (1) may, by contract or otherwise, perform such replacement or correction and charge to Seller any increased cost occasioned Buyer thereby, or may reduce any fee payable under this Purchase Order (or require repayment of any fee theretofore paid) in such amount as may be equitable under the circumstances; or (2) in the case of articles not delivered, may require the delivery of any such articles, and shall have the right to reduce any fee payable under this Purchase Order (or to require repayment of any fee theretofore paid) in such amount as may be equitable under the circumstances; or (3) may terminate this Purchase Order for default. The foregoing remedies shall in no way preclude or prejudice the exercise of any other right or remedy that Buyer may have at law or in equity.
Notwithstanding Paragraph c. above, Buyer may at any time require Seller to remedy, by correction or replacement, without cost to Buyer, nonconforming supplies or services if the nonconformance is due to (1) fraud, lack of good faith, or willful misconduct on the part of Seller or its employees or representative or (2) the conduct of one or more of the Seller’s employees selected or retained by the Seller after Seller’s managerial personnel had reasonable grounds to believe the employee was habitually careless or unqualified.
Corrected articles or articles tendered as replacement shall be subject to the provisions of this clause in the same manner and to the same extent as articles originally delivered under this Purchase Order.
Seller shall make its records of all inspection work available to Buyer and/or Buyer’s customer during the performance of this Purchase Order and for such longer period as may be specified in the Purchase Order.

15. Inspection/Acceptance
CLAUSE TWO:
Inspection: Both Buyer and Buyer' customer may at any time (e.g., before, during or after manufacture or completion) inspect and test any or all Products ordered hereunder with reasonable notice and so as not to unduly delay the work. Such inspection and/or test may occur at Seller or Sellers’ subcontractor’s plant on a non-interference basis. All Products shall be subject to final acceptance by Buyer. Inspections shall be performed in such a manner as not to delay Seller's performance unduly. In the case of rejection of any Products, neither Buyer nor Buyer' customer shall be liable for any reduction in value of samples used in connection with such inspection or test. No inspection or test or review or approval by Buyer or Buyer' customer shall relieve Seller of any of its obligations under this Purchase Order, or constitute a waiver of any defects or nonconformities.
Rejected Products: Rejected Products may, at the option of Buyer, be returned to Seller at Seller's expense for outbound and inbound shipments with risk of loss or damage upon Seller, or be accepted with an equitable adjustment in price. Upon rejection, Seller shall refund previous payments for rejected product. Seller shall not resubmit rejected Products for acceptance without a concurrent notice to Buyer of the prior rejection. If, after request by Buyer, Seller fails to promptly replace or correct any rejected Products, Buyer at its sole discretion (1) may replace or correct such Products, and charge to Seller the cost incurred by Buyer in doing so, or (2) may, without further notice, terminate this Purchase Order for default, in accordance with Clause 6. The foregoing remedies shall in no way preclude or prejudice the exercise of any other right or remedy that Buyer may have at law or under this Purchase Order.
Final Acceptance: Except as otherwise agreed in writing, all Products provided under this Purchase Order shall be subject to final inspection and acceptance by Buyer. Final acceptance by Buyer of the Products provided hereunder shall take place after delivery of Products in accordance with the delivery schedule specified herein or later agreed upon by the parties in writing and after final inspection of those Products by Buyer. Final acceptance shall be contingent upon agreement by Buyer that the Products conform to the requirements of this Purchase Order. Final acceptance shall be evidenced by the execution of a written certificate or document signed by a Buyer representative indicating the date of final acceptance. Final acceptance by Buyer shall be conclusive, except for latent defects, negligent intentional misrepresentations by Seller that a nonconformity or defect would be or had been cured or did not exist. Final acceptance by Buyer of the Products delivered hereunder shall not limit or affect the warranty granted by Seller hereunder.
Risk of Loss: Seller shall bear the risk of loss or damage to the Products until they are delivered in conformity with this Purchase Order at the F.O.B. destination point stated in the Purchase Order. (If not otherwise stated, destination point shall be or F.O.B. Origin ). Upon such delivery, Seller’s responsibility for loss or damage to the Products shall cease except for loss or damage resulting from Seller’s negligence or fault. Notwithstanding the foregoing, Seller shall remain responsible for risk of loss of any nonconforming or rejected Products, unless such loss, destruction, or damage results from the negligence or fault of Buyer.
Title: Except as otherwise stated in this Purchase Order, title to all Products furnished under this Purchase Order shall pass to Buyer upon final acceptance regardless of when or where Buyer takes physical possession of the items.