Contract Risk Management for Airport Agreements (2016)

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27 (ii) comply with all applicable Environmental Laws which apply to Airline’s operations. Each Airline shall hold harm- less and indemnify the Authority for any violation by such Airline of such applicable Environmental Laws and for any non-compliance by such Airline with any permits issued to Airline or to the Authority (to the extent applicable to Air- line) pursuant to such Environmental Laws, which hold harmless and indemnity shall include, but not be limited to, enforcement actions to assess, abate, remediate, undertake corrective measures or monitor environmental conditions and for any monetary penalties, costs, expenses, or damages, including natural resource damages, imposed against Airline, its employees, invitees, suppliers, or service providers or the Authority by reason of such Airline’s violation or non-compliance. (iii) cooperate with any investigation, audit or inquiry by the Authority or any governmental or quasi-governmental agency, regarding possible violation by Airline of any Envi- ronmental Law upon the Airport, to the extent applicable or potentially applicable to Airline. (iv) promptly provide to the Authority any notice of viola- tion, notice of non-compliance, or other enforcement action relating to the Airport promptly after receipt by Airline or Airline’s agent. (b) Stormwater. (i) Each Airline shall observe and abide by all stormwater rules and regulations as may be applicable to Airline and its use of the Authority’s property. (ii) Any stormwater discharge permit issued to the Authority may name such Airline as a co-permitee. Each Airline shall closely cooperate with the Authority to ensure compliance with any applicable stormwater discharge permit terms and conditions. Each Airline shall undertake such actions neces- sary to minimize the exposure of stormwater to “significant materials” generated, stored, handled or otherwise used by such Airline, as such term may be defined by applicable stormwater rules and regulations, by implementing and maintaining “best management practices” as that term may be defined in applicable stormwater rules and regulations. (iii) Within ten (10) days after receipt of any written notice from the Authority or any governing authority relating to stormwater discharge requirements applicable to Airline, an Airline shall notify the Authority in writing if it disputes any of the stormwater permit requirements it is being directed to undertake. If an Airline does not provide such timely notice, such Airline shall undertake at its sole expense, unless otherwise agreed to in writing between the Authority and Airline, those stormwater permit require- ments for which it has received written notice from the Authority, and Airline will hold harmless and indemnify the Authority for any violations or non-compliance by such Air- line with any such permit requirements. (c) Solid and Hazardous Waste. (i) Each Airline shall comply with all applicable federal, state and local laws relating to such Airline’s transporta- tion, handling, storage, treatment or disposal of solid or haz- ardous waste at the Airport, and any rules and regulations promulgated thereunder, including but not limited to, ensuring that the transportation, storage, handling and dis- posal of such hazardous wastes are conducted in full com- pliance with applicable law. (ii) Each Airline shall provide the Authority, or, at Authori- ty’s option, make available for review by the Authority, upon request, copies of all hazardous waste permit application documentation, permits, monitoring reports, transportation, responses, storage, disposal and contingency plans and material safety data sheets applicable to Airline’s operations at the Airport, within ten (10) days after any such requests by the Authority, all of which shall be maintained in compli- ance with applicable Environmental Laws. Each Airline shall have, and shall implement as needed, to the extent required by applicable Environmental Laws, a written plan addressing containment and cleanup of fuel and/or oil spills. (d) Air Quality. Each Airline agrees to comply with all appli- cable Environmental Laws relating to the quality of air in any confined or indoor spaces. See Appendix E-4, Orlando International Airport. Appendix E-4 provides a survey of additional con- tractual provisions used by other airports to address environmental risk. Methods to Contractually Mitigate Risk The following list provides topics and issues to address when drafting or reviewing a contractual provision related to environmental risk: • Include an indemnification provision that sur- vives the termination of the agreement. • Require the airlines to cooperate with any investigation or audit of the airport by any gov- ernmental agency regarding possible violations of environmental laws. • Include nonreimbursed environmental costs in the airfield cost center. F. Ground Transportation Agreements Ground transportation agreements at an airport govern rights of access, rights to dwell, and rights to pick up and drop off passengers for commercial ground transportation companies.6 These agree- ments seek to organize a highly competitive and crowded field and generate revenue to the airport through the granting of licenses. Any time heavy motor vehicle and pedestrian traffic are both pres- ent, risk of injury and property damage exist. Identification of Risk The risks attendant to ground transportation agreements are addressed through contractual 6 Specific strategies, legal and regulatory conditions, and the objectives, advantages, and disadvantages associ- ated with the use of private-sector companies for ground transportation and park services are discussed in ACRP Report 36: Airport/Airline Agreements—Practices and Characteristics. Ground transportation agreements are also addressed by ACRP Report 33: Guidebook for Developing and Managing Airport Contracts, TransporTaTion research Board (2011), http://onlinepubs.trb.org/onlinepubs/acrp/ acrp_rpt_033.pdf.

28 provisions and a variety of insurance instruments. The risks and risk mitigation strategies under the majority of these agreements are similar: the pri- mary ones include unauthorized solicitation of passengers, personal injury to passengers and driv- ers, property damage, and performance. 1. Unauthorized Solicitation of Passengers.— Airports contract with numerous transportation pro- viders (e.g., taxi cabs, hotel shuttles, public buses, etc.) to provide transportation services for their passen- gers. Ground transportation agreements must clearly delineate the areas that transportation providers are permitted to solicit passengers in an effort to main- tain order among transportation providers and to ensure that airport passengers are being accommo- dated efficiently and without the use of pressured sales tactics. By granting licenses and permits to oper- ate on airport property, the airport creates a revenue- generating enterprise and reduces injuries due to accident as a result of lack of organization. Although not addressed by any of the example provisions provided in this digest, the growing popu- larity and prevalence of ride-hailing services, such as Uber and Lyft, have created both regulatory and monetary issues for airports. Ride-hailing companies and their drivers could seek to circumvent the regu- lations and fees imposed, through ground transpor- tation agreements, on other licensed ground transportation providers by avoiding commercial lanes and instead dwelling in and using noncommer- cial pick-up and drop-off lanes. The covert nature of these operations increases traffic in noncommercial lanes, creates a competitive disadvantage for fee- paying licensed commercial transportation providers, and reduces revenue to the airport. Airports must balance the passenger’s desire for greater and more convenient ground transportation choices (i.e., allow- ing Uber and Lyft to freely use the airport premises) with the need to maintain control and regulation over the ground transportation providers that use the airport’s premises. Commercial ride-hailing services should follow the same rules as other com- mercial transportation companies, including enter- ing into and abiding by ground transportation agreements and rules. Example/Sample Provision The following contractual provision is an example of how risk associated with the unauthorized solici- tation of passengers may be addressed in a ground transportation agreement. 3.02. Use of Concession Space. Concessionaire may use the Concession Space only for the operation of a non-exclusive concession for providing commercial ground transportation services to the public and for no other purposes, unless explicitly permitted to do so by this Agreement or otherwise authorized in writing by the Manager. Concessionaire shall not sell or offer for sale any service or merchandise not authorized by the Manager, nor shall Concessionaire place, maintain, or use in its operations hereunder, fixtures or fur- nishings in any areas located outside the Concession Space, regardless of whether such areas are adjacent to the Conces- sion Space. Concessionaire covenants and agrees to operate its Concession in strict conformity with the Permitted Use. Express Restrictions. Unless otherwise authorized in writ- ing by the Manager, Concessionaire shall not offer for sale items expressly restricted on the Summary Page; nor shall Concessionaire offer for sale any merchandise, services, or engage in any activity not specifically provided for under the terms of this Agreement. No Displays Outside the Concession Space. Concessionaire shall not place, install, maintain or use any racks, stands or other display of merchandise, trade fixtures or furnishings in or upon any areas located outside the Concession Space, regardless of whether such areas are adjacent to the Concession Space. No Solicitation Outside the Concession Space. In no event will Concessionaire engage in any activity on the Airport outside of the Concession Space for the recruitment or solic- itation of business. 6.04 Operations. Concessionaire agrees to conduct its busi- ness to accommodate the public using the Airport and to operate the concession in the following manner: I. Concessionaire’s employees and agents shall not engage in “high pressure” sales tactics or unfair or deceptive trade practices in the operation of the concession. Additionally, Concessionaire’s employees and agents shall not engage in solicitation for or in connection with any services offered on or about the Airport by Concessionaire or any other party, except for offering Concessionaire’s services to persons at the Concession Space. No payment shall be made to indi- viduals, such as skycaps, for the purpose of diverting cus- tomers to Concessionaire’s counter or vans. Concessionaire will not interfere with the operations of adjoining or other Airport tenants. Without limiting the foregoing, Conces- sionaire will not attempt to divert passengers who are wait- ing in line to obtain service from its competitors or who have pre-booked travel arrangements with any other ground transportation company. Failure by Concessionaire to comply with the provisions of this Section 6 shall consti- tute a material breach of this Agreement. See Appendix F-1, Denver International Airport. Appendix F-1 provides a survey of additional con- tractual provisions used by other airports to address the risks associated with the unauthorized solicita- tion of passengers. Methods to Contractually Mitigate Risk The following list provides topics and issues to address when drafting or reviewing a contractual provision related to the risks associated with the unauthorized solicitation of passengers: • Clearly delineate the areas where the trans- portation providers are permitted to solicit passen- gers and conduct their operations.

29 • Specifically prohibit certain types of signage/ displays and solicitation practices outside of designated areas. • Require all commercial transportation pro- viders to use commercial lanes and abide by all ground transportation rules. 2. Personal Injury to Passengers and Drivers.— The operation of motor vehicles in areas with heavy passenger and vehicle traffic (e.g., arrival and depar- ture lanes) will invariably result in injuries to pas- sengers and drivers. Airports must allocate liability for injuries incurred by third parties between them- selves and the transportation providers that service the airport. Airports benefit from the broad indemni- fication obligations of the transportation provider (i.e., transportation providers indemnify for all liabil- ity and risk except where the injury or damage is caused by the airport’s sole negligence) and from lim- iting their own indemnification obligations. Most important, the airport should require all commercial transportation companies to maintain acceptable levels of liability insurance, naming the airport as an additional insured under such policies. Example/Sample Provision The following contractual provision is an example of how risks associated with personal injury to pas- sengers and drivers may be addressed in a ground transportation agreement. 9.01. Indemnity. (a) Concessionaire hereby agrees to defend, indemnify, reimburse and hold harmless City, its appointed and elected officials, agents and employees for, from and against all lia- bilities, claims, judgments, suits or demands for damages to persons or property arising out of, resulting from, or relat- ing to, directly or indirectly, its operations in connection herewith work performed under this Agreement, its con- struction of the Concession Improvements, or its use or occupancy of any portion of the Airport and including acts and omissions of officers, employees, representatives, sup- pliers, invitees, contractors, subcontractors, and agents of the Concessionaire; (“Claims”), unless such Claims have been specifically determined by the trier of fact to be the sole negligence or willful misconduct of the City. This indemnity shall be interpreted in the broadest possible manner to indemnify City for any acts or omissions of Con- cessionaire or its subcontractors either passive or active, irrespective of fault, including City’s concurrent negligence whether active or passive, except for the sole negligence or willful misconduct of City. (b) Concessionaire’s duty to defend and indemnify City shall arise at the time written notice of the Claim is first provided to City regardless of whether Claimant has filed suit on the Claim. Concessionaire’s duty to defend and indemnify City shall arise even if City is the only party sued by claimant and/or claimant alleges that City’s negligence or willful mis- conduct was the sole cause of claimant’s damages. (c) Concessionaire will defend any and all Claims which may be brought or threatened against City and will pay on behalf of City any expenses incurred by reason of such Claims including, but not limited to, court costs and attor- ney fees incurred in defending and investigating such Claims or seeking to enforce this indemnity obligation. Such payments on behalf of City shall be in addition to any other legal remedies available to City and shall not be con- sidered City’s exclusive remedy. (d) Insurance coverage requirements specified in this Agreement shall in no way lessen or limit the liability of the Concessionaire under the terms of this indemnification obligation. The Concessionaire shall obtain, at its own expense, any additional insurance that it deems necessary for the City’s protection. (e) This defense and indemnification obligation shall sur- vive the expiration or termination of this Agreement. See Appendix F-2, Denver International Airport. Appendix F-2 provides a survey of additional con- tractual provisions used by other airports to address the risks associated with personal injury to passen- gers and drivers. Methods to Contractually Mitigate Risk The following list provides topics and issues to address when drafting or reviewing a contractual provision related to risks associated with personal injury to passengers and drivers: • Obtain indemnity from ground transportation providers for all operations, regardless of fault. • Require ground transportation providers to maintain appropriate insurance coverage, naming the airport as an additional insured to cover lia- bility related to personal injury that results from their operations on the airport premises. 3. Property Damage.—With the high volume of transportation vehicles that utilize airport property, damage to airport or private property is inevitable. Airports must therefore allocate responsibility among the parties for damages to airport property. Airports benefit from broad indemnification obliga- tions of the transportation provider (i.e., transporta- tion providers indemnify for all liability and risk except where damage is caused by the airport’s sole negligence) and from limiting their own indemnifi- cation obligations. Most important, the airport should require all commercial transportation com- panies to maintain acceptable levels of liability insurance, naming the airport as an additional insured under such policies. Example/Sample Provision The following contractual provision is an example of how property damage risk may be addressed in a ground transportation agreement. 11.2 Liability Insurance. Company, at its own cost and expense, shall obtain and maintain or cause to be

30 obtained and maintained throughout the term of this Agreement, the following types of insurance naming the Authority, the City and the members including, but with- out limitation, all members of the governing board of the Authority, the Orlando City Council and the advisory committees of each), officers, agents and employees of each as additional insured’s. 11.2.1 Automobile. Automobile Liability insurance (any auto, including owned autos, non-owned autos and hired autos). Limits for automobile liability insurance shall not be less than: (i) ONE MILLION AND NO/lOO DOLLARS ($1,000,000.00) for injuries and property damage per occur- rence or accident, or (ii) such limits as the City of Orlando may from time to time require, whichever are higher, with such deductible as may be acceptable to the Executive Director. The Executive Director shall have the right to alter the monetary limits or coverage’s herein specified from time to time during the term of this Agreement, and Company shall comply with all reasonable requests of the Executive Director with respect thereto. 11.2.2 Commercial General Liability. Limits of commercial general liability insurance shall not be less than ONE MIL- LION AND NO/lOO DOLLARS ($ 1,000,000.00), combined single limit or its equivalent, per occurrence, with contrac- tual liability coverage for Company’s covenants to and indemnification of the Authority and the City under this Agreement with such deductible as may be acceptable to the Executive Director. The Executive Director shall have the right to alter the monetary limits or coverage’s herein specified from time to time during the term of this Agree- ment, and Company shall comply with all reasonable requests of the Executive Director with respect thereto. 11.2.3 Workers’ Compensation Insurance. If the nature of Company’s use of the Premises or business operations at the Premises are such as to place any or all of its employees under the coverage of workers’ compensation or similar statutes, Company shall also purchase workers’ compensa- tion and employer’s liability insurance or similar insurance with a company or companies acceptable to the Authority affording the required statutory coverage and containing the requisite statutory limits to be effective at least twenty (20) days prior to the Commencement Date or the com- mencement of any construction or installation on the Prem- ises, whichever first occurs, and to be maintained by Company throughout the term of this Agreement. Employ- er’s liability insurance limits shall be not less than FIVE HUNDRED THOUSAND AND NO/lOO DOLLARS ($500,000.00) for each of the “each accident,” “disease policy limit,” and “disease each employee” coverage’s. 11.2.4 Standards. Such insurance shall provide that it is primary insurance as respects any other valid and collect- ible insurance Company may possess, as applicable, and that any other insurance the Company does possess shall be considered excess insurance only. 11.2.5 Evidence of Insurance. Company shall provide, upon execution of this Agreement, and at least thirty (30) days prior to the expiration of any insurance policy or policies theretofore provided hereunder, an original certificate or cer- tificates of insurance as evidence that all coverage required hereunder is in effect. Such certificate provided by Company shall name the Authority, Company, the City and the mem- bers (including, without limitation, members of the govern- ing Board of the Authority and the Orlando City Council, and members of the advisory committees of each), officers, employees and agents of each as additional insured to the extent applicable as described above, and shall provide that the policy or policies may not be canceled or modified nor the limits thereunder decreased without thirty (30) days’ prior written notice thereof to the Authority. Company shall also provide the Authority with copies of such endorsements and other evidence of the coverage set forth in the certificate of insurance as the Authority may reasonably request. 11.3 Property Insurance. The Authority may, at its option, maintain property insurance on the Terminal Complex, but it is expressly understood that such insurance shall not cover Improvements, furnishings, trade fixtures, signs, equipment or other property of Company. 11.3.1 Company shall, without expense to the Authority, obtain and maintain in effect throughout the term of this Agreement, for the benefit of Company, the Authority and the trustee of certain of the Authority’s outstanding Airport revenue bonds, as their interests may appear, property insurance on the Ml insurable value of all Improvements, furnishings, trade fixtures, signs and equipment hereafter installed on the Premises by Company, on a replacement cost basis, in such form and with such company or compa- nies as the Executive Director shall approve. Such insur- ance shall be effective at least twenty (20) days prior to the Commencement Date or the commencement of any con- struction or installation on the Premises, whichever first occurs, and shall be maintained by Company throughout the term of this Agreement. 11.3.2 Upon execution of this Agreement or at least twenty (20) days prior to commencement of any construction or installation on the Premises, whichever first occurs, and at least thirty (30) days prior to the expiration of any policy or policies theretofore provided by Company under this Article 11.3, Company shall cause one or more original certificates of insurance to be furnished to the Executive Director evidencing such coverage, and such certificates shall name the Authority, Company and the trustee of cer- tain of the Authority’s outstanding Airport revenue bonds as loss payees as their interests may appear, and shall pro- vide that the policy or policies will not be cancelled or reduced without thirty (30) days prior written notice thereof to the Authority. 11.3.3 Company, on behalf of itself and its insurance carrier, hereby waives any and all rights of recovery which it may have against the Authority or the City for any loss of or damage to property it may suffer as a result of any fire or other peril normally insured against under a policy of prop- erty insurance. The Authority, on behalf of itself and its insurance carrier(s), hereby waives any and all rights of recovery which it may have against Company for any loss of or damage to property it may suffer as the result of any fire or other peril to the extent such fire or other peril arises as a result of any act or omission of Company’s licensees or invitees and the Authority is compensated for such loss or damage from the proceeds of any applicable policy of prop- erty insurance carried by the Authority; provided, however, that such waiver shall not apply with respect to the acts or omissions of Company’s officers, partners, employees, agents, contractors or subcontractors, and shall apply only to the extent permitted by such applicable insurance policy without loss of any insurance coverage. See Appendix F-3, Orlando International Airport.

31 Appendix F-3 provides a survey of additional con- tractual provisions used by other airports to address the risk of property damage. Methods to Contractually Mitigate Risk The following list provides topics and issues to address when drafting or reviewing a contractual provision related to property damage risk: • Obtain indemnity from ground transportation providers for all operations, regardless of fault. • Require ground transportation providers to maintain appropriate insurance coverage, naming the airport as an additional insured to cover liabil- ity related to property damage that results from their operations on the airport premises. 4. Performance.—Satisfactory performance of air- port agreements is critical to airport operations. A transportation provider’s failure to perform its duties or the unsatisfactory performance of its duties and obligations under the ground transporta- tion agreement creates significant risks for airports in the form of default and nonpayment. Through the bidding process, competitors have been excluded or limited from the airport, and therefore, the non- performance and/or nonpayment by any one ground transportation provider will adversely affect airport revenue and result in insufficient transportation options to and from the airport for passengers. The risks associated with deficient performance of ground transportation agreements can be addressed through clarity in the scope of services and the inclusion of a performance bond to insure satisfactory performance. Example/Sample Provision The following contractual provision is an example of how performance risk may be addressed in a ground transportation agreement. Article 10 Contract Bond or Letter of Credit. Company shall provide to the Authority on the execution of this Agreement, a Contract Bond or, at the option of Company (and subject to certain additional requirements as described below), an irrevocable standby Letter of Credit (“Letter of Credit”) in the form attached hereto as Item III-A and Item III-B. Such Contract Bond or Letter of Credit shall be effective as of the Commencement Date hereof and shall be maintained by Company throughout the Term of this Agreement in an amount equal to fifty percent (50%) of the initial Minimum Annual Concession Fee during the Initial Period, fifty per- cent (50%) of the initial Minimum Annual Concession Fee during the next Agreement Period, and during each subse- quent Agreement Period, fifty percent (50%) of the Mini- mum Annual Concession Fee of the immediately preceding Agreement Period (in each event the amount of the Con- tract Bond or Letter of Credit shall be rounded to the near- est One Thousand Dollars ($1,000.00)). Such Contract Bond or Letter of Credit shall guarantee the faithful performance by Company of all of its obligations under this Agreement, including, without limitation, the payment by Company of all Concession Fees, Privilege Fees, Dwell Time Fees and other amounts due hereunder. Such Contract Bond or Let- ter of Credit shall be on a form provided by the Authority. Any Contract Bond shall be on a form to be provided by the Authority and shall be written by a company licensed to do business in the State of Florida, which is acceptable to the Executive Director. Any Letter of Credit provided hereun- der shall be on a form provided by the Authority and shall be issued by a bank, acceptable to the Executive Director, which is located within Orange County, Florida (unless the Executive Director waives such requirement in writing). In the event that any Contract Bond or Letter of Credit pro- vided under this Article 10 shall be for a period of less than the full Term of this Agreement, or in the event the amount of the Contract Bond or Letter of Credit is to be increased or decreased, Company shall provide a renewal or replace- ment Contract Bond or Letter of Credit which complies with the requirements of this Article 10 at least one hun- dred eighty (180) days prior to the date on which the previ- ous Contract Bond or Letter of Credit expires. The Letter of Credit must contain a condition that it shall be deemed automatically extended without amendment for one (1) year from the expiration date herein, or any future expira- tion date, unless ninety (90) days prior to any expiration date the Bank on which the Letter of Credit is drawn, shall notify the Authority by Registered Mail that such Bank elects not to consider the Letter of Credit renewed for any such additional period. Company’s failure to timely provide a replacement Contract Bond or Letter of Credit hereunder shall constitute a default under this Agreement and the Authority shall be entitled to any remedies provided here- under, and may, without limitation, proceed to recover under Company’s existing Contract Bond or draw on the full amount of its existing Letter of Credit. If Company pro- vides the Authority with a Letter of Credit or Contract Bond, Company shall maintain such Letter of Credit or Contract Bond in effect for at least one (1) year after the expiration or earlier termination of the Term hereof in the amount required for the last Agreement Period. However, the Authority shall release any existing Letter of Credit or Contract Bond provided by Company upon the Authority’s receipt of a replacement Letter of Credit or Contract Bond that complies with the requirements of this Article 10. See Appendix F-4, Orlando International Airport. Appendix F-4 provides a survey of additional con- tractual provisions used by other airports to address performance risk. Methods to Contractually Mitigate Risk The following list provides topics and issues to address when drafting or reviewing a contractual provision related to performance risk: • Provide for and perform an audit of perfor- mance and payment at the discretion of the air- port, as fees based on self-reporting of trips and dwell time may be difficult to track. • Require ground transportation providers to obtain a payment and performance bond with a third-party surety to cover events of default.