Limiting Contractor Liability in 
Crown Procurement Contracts	

Training Manual	

Revisions
Number	Description	Date	
1.0	Initial Draft – Structure Only	01-08-2002	
2.0	Draft for Internal discussion and comments	08-08-2002	
3.0	2nd Draft for internal review and discussion 	27-08-2002	
3.3	3rd Draft for internal review, discussion and initial translation	06-09-2002	
4.0	4th Draft for management review	13-09-2002	
5.0	5th Draft – Incorporation of Review comments, additional worksheets	19-09-2002 	
5.1	Minor Draft Amendment – modification of Case Studies to remove reference to sensitive information	23-09-2002	
6.0	Final Draft incorporating modified Action Plan Checklists	27-09-2002	

			

Limitation of Contractor Liability Training Manual
TABLE OF CONTENTS

1.	Training Program Schedule
2.	Lecture Support Material and Notes
2.1	Policy and Underlying Principles
2.1.1	Policy on Limitation of Contractor Liability
2.1.2	Implementation strategy
2.2	Terminology and Definitions
2.3	Procurement Models
2.4	The Decision Tree
2.5	Authorities
2.5.1	Authorities of PWGSC
2.5.2	General Departmental Authorities
2.5.3	Financial Responsibilities
2.5.4	Requirements for Specific TB Authority
3.	Case Study Workshop: Part I
3.1	Introduction of Four Case Studies:
3.2	Additional Exercise Material:
4.	Dealing with Risk
4.1	Overview of the Steps in the Process
4.2	Risk Management
4.3	Risk Identification
4.4	Risk Review
4.5	Risk Assessment
4.6	Managing Contract Risks
4.7	Risk Mitigation/Risk Transfer Contract Clauses
5.	Case Study Workshop: Part II
5.1	Define an Action Plan
5.1.1	For Model #1:
5.1.2	For Model #2:
5.1.3	For Model #3:
5.1.4	For Model #4:
6.	Examples of Limitation of Liability/Indemnification Clauses
6.1	Risk Management/Mitigation
6.2	Indemnification
6.3	Valuation:
Annex A	Case Study Worksheets
1	Case Study #1: New IM/IT Application Development and Implementation
2	Case Study #2:  A Personal Services Contract
3	Case Study #3: Development of a Health Regulatory Standard
4	Case Study #4: A Portion of a New Earth Observation Satellite System
Annex B	Action Plan Checklists
Annex C	List of Trainees
Annex D	Logistics Information
Annex E	Lecture Presentation Slides
Annex F	Policy on Limiting Contractor Liability in Crown Procurement Contracts
Annex G	Implementation Guide - Limiting Contractor Liability in Crown Procurement

1.	Training Program Schedule
Time	Subject	Training Manual Section Reference	Supporting Documentation	
0830	Introduction 			
0900	Policy and Underlying Principles 	2.1, 2.2	Policy on Limiting Contractor Liability in Crown Procurement Contracts (Annex F)	
1000	Break			
1015	Procurement Models, the Decision Tree, and Authorities	2.3 to 2.5	Implementation Guide - Limiting Contractor Liability in Crown Procurement (Annex G) 	
1045	Case Studies – Part I	3 and Annex A	Case Study Worksheets (Section Annex A)	
1145	Dealing with Risk – Overview of Risk Management	4.1 and 4.2		
1200	Lunch			
1315	Risk Identification, Risk Review, and Risk Assessment 	4.3 to 4.5		
1400	Managing Contract Risks	4.6 To 4.7		
1445	Break			
1500	Case Studies – Part II 	5, Annex A and Annex B	Case Study Worksheets and Action Plan Checklists	
1600	Examples of Limitation of Liability and Indemnification Clauses	6	Example Clauses	

2.	
Lecture Support Material and Notes 
2.1	Policy and Underlying Principles
2.1.1	Policy on Limitation of Contractor Liability
•	Key objectives and requirements: cost effective risk management with minimal administrative burden in Crown procurement contracts
•	Consistent with the principles of common law, the policy is based on the following key principles:
•	Protection of the Crown’s interests;
•	Contractors will be held accountable for risks under their control and retain financial responsibility for corresponding losses;
•	Substantive limitation of liability should only occur in exceptional cases. Where the likelihood is significant that the Crown may experience losses as a result of the limitation and, that this is offset by the benefits of a compelling public interest, limitation of liability may be considered.
•	The decision whether to limit a contractor’s liability must be based on an appropriate level of risk assessment and management. 
•	Related supporting policies and summary of Ministerial Authority
•	Nothing in the policy should be interpreted to mean that limitations of liability should alter the contractor’s full liability in the event of gross negligence or malfeasance on the contractor’s part.
2.1.2	Implementation strategy
•	Risk based focus 
•	Historically, the culture has not been conducive to innovative and intelligent risk taking – it has been focused on a simple approach of minimization or elimination of risk with limited regard to striking a balance between potential benefits and potential negative consequences.
•	Progressive risk reviews
•	Maximize use of standard contract position
•	Maximize PWGSC contracting authority for non-standard positions
•	Require credible Contractor support for all contractual risk transfer requests
•	Easy to use risk assessment models and tools
•	Timely expert support
2.2	Terminology and Definitions
First party - the Crown or the contractor 
Third party – any party other than those entering into the Crown procurement contract.
Crown Procurement Contract – an agreement between a contracting authority and a contractor to provide a good, perform a service or construct a work for appropriate consideration – subject to the Government Contract Regulations
Indemnification – a legally binding promise whereby one first party undertakes to accept any responsibility for losses or damages another party may suffer or be liable for. The difference between indemnification and limitation of liability can be viewed in terms of who pays money to whom. If the Crown indemnifies the contractor, the Crown will pay money to the contractor to reimburse the contractor for losses suffered. In the case of a limitation of liability, the contractor pays money to the Crown, rather than the other way around. The amount of that flow from the contractor may be limited by contract. It is also useful to underline that that flow of money is not automatic in case of an incident. The responsibilities of each party would have to have been clearly determined and both would have to agree to it.
Liability - the legal obligation to do something or refrain from doing something, but in the context of this policy usually refers to the obligation to pay money to compensate for damages suffered by a first or third party.
Limitation of Liability – the establishment by contract of a predetermined maximum financial responsibility which might be more or less than that imposed by law in the absence of such contractual limitation. This is essentially a risk management technique, sometimes referred to as a risk financing technique. 
Risk: 
Performance Risk – risk that relates to the performance of the contractor, often covered by performance bonds and other insurance mechanisms,
Product Risk – risk that a contracted service or good causes damage to people and/or property. 
Non-Substantive Transfer –where the limitation of liability of the contractor to be included in the contract is more than the potential liability that might reasonably be expected based on the circumstances and potential types of losses that might arise from specified risks taking into account their probability.
Substantive Transfer –where the limitation of liability of the contractor to be included in the contract is less than the potential liability that might reasonably be expected based on the circumstances and potential types of losses that might arise from the specified risks taking into account their probability. (See Case B on Chart below)
Silence – absence of a clause indemnifying the Crown with regards to claims by third parties. When there is silence with respect to indemnification of the Crown, the contract will be governed by common law (or civil law in the Province of Quebec)
Gross Negligence - Gross negligence is generally defined as conduct so reckless as to demonstrate a substantial lack of concern for whether an injury results. It is used as a basis for awarding extraordinary damages, as a ground for disciplining professional licensees, and as a restriction on private organizations that seek to indemnify or release their officers and directors from liability.
Malfeasance - Malfeasance means wrongdoing beyond simple negligence. It may include an illegal deed and frequently is also interpreted to mean an act of misconduct or wrongdoing, or improper or unethical professional conduct. 
Frequently the difference between gross negligence and malfeasance is the degree of intent: malfeasance implies a higher level of intent to do wrong whereas gross negligence can be attributable to lack of due care and attention.
2.3	Procurement Models
The policy recognizes that a simple commodity purchasing is not going to face the same severity of risk as a contract for a complex developmental project or for a procurement involving delivery of a national or statutory responsibility such as establishment of standards and safety measures. 
•	The Policy splits all Crown procurement contracts for goods, services, or construction covered by the Government Contract Regulations and Policy into four risk-based Models. 
•	Four Models are intended to encompass all possible federal government procurement situations that are subject to the Government Contract Regulations and Contracting Policies.
•	The Models cover all types of procurement from low risk contracts for standard commodities to highly specialized, high-risk contracts where there are significant public-interest issues at stake. 
•	Decisions on liability issues are based on which procurement contract Model applies. 
•	Does not cover contracts associated with transfer payments. Those contracts are covered by the Policy on Transfer Payments.
Model 1 - Standard
•	The simplest and most common type of procurement contract accounting for over 90% of all Crown procurement contracts.
•	Standard commercial or military products and services and construction contracts commonly available in the marketplace (MOTS and COTS)
Model 2 - Complex
•	Complex procurements that have a high degree of uncertainty or risk because of the untested nature of the technology or the unproven, unique or developmental nature of the deliverable. The uncertainty or risk could also be magnified by the intended use of the deliverable by the government.
•	Includes procurements involving non-standard modifications of proven military or commercially available products and services.
Model 3 – Limited Flexibility
•	Procurements where the government’s ability to negotiate contractual terms and conditions regarding liability is limited.
•	Includes:
•	Multi-government collaborative procurement programs that result in a Crown procurement contract. This may occur where there are pre-existing negotiated agreements, with indemnification and/or limitation of liability provisions, pursuant to policy or legislation in another jurisdiction, and the contractor may be unwilling to offer the Crown different terms for the same or similar items.
•	Procurements developing, involving, or requiring access to patents, copyrights or other exclusive rights or proprietary information;
•	Procurements requiring highly specialized knowledge and expertise.

Model 4 – Highly Specialized
•	Primarily services contracts typically tied closely to core government departmental policy and program considerations.
•	Includes:
•	Mandated departmental responsibilities related to the health, safety or economic well-being of Canadians
•	Complex arrangements where the government has a statutory obligation to regulate via standards and certification; and
•	Long established responsibilities of government.
2.4	The Decision Tree 

•	Predetermined conditions: 
•	Exclusive rights including ownership or control by the potential contractor of 
•	patents, 
•	copyrights, 
•	proprietary information, or 
•	unique or highly specialized technical knowledge
•	Pre-existing agreements on which the Crown wishes to “piggyback” procurement of the same goods or services
2.5	Authorities
2.5.1	Authorities of PWGSC
The Deputy Minister of PWGSC and officials designated by the Deputy Minister are authorized to: 
1.	limit specified first party liability(ies) with no substantive transfer of a contractor's liabilities to the Crown; or with substantive transfer of a contractor's liabilities to the Crown in exceptional circumstances as set out in the policy for certain complex or highly specialized contracts
2.	limit first and/or third party liability(ies) with no substantive transfer of a contractor’s liabilities to the Crown; or with substantive transfer of a contractor’s liabilities to the Crown as set out in the policy for certain contracts where the Crown has limited flexibility 
3.	establish Commodity Groupings in accordance with the policy
Commodity Groupings
Commodity Groupings are collections of frequently purchased commodities having common characteristics, similar risk profiles and similar financial models. The concept is to group commodities whose risk profiles are so similar as to allow being treated with a single, systematic risk assessment/review. This grouping is designed to simplify and expedite the administration of liability considerations by taking advantage of previous work, effort and expertise that have been applied to a certain class of commodity procurement. 
•	Commodity groupings may be developed on an as-required basis and may consist of:
•	Like commodities (e.g. personal computers and servers);
•	Commodities with a common end-use (e.g., all airframe, mission support system, and repair & overhaul procurements relating to a particular aircraft);
•	Any group of commodities that facilitate systematic, common risk assessments and common decision-making.
The establishment of a Commodity Grouping requires that PWGSC complete a risk review and, if applicable, ensure that acceptable limitations on liability have been established and specified. The risk review must include consideration by financial, technical, legal, and program experts as appropriate.
PWGSC will normally handle procurement using existing Commodity Groupings. 
2.5.2	General Departmental Authorities
Departments are authorized to use the standard indemnification of the Crown clause, or silence, but are not authorized to limit contractor liability or indemnify contractors in the absence of specific Treasury Board authorities
•	Departments can:
•	in specific instances, work with Public Works and Government Services Canada to incorporate appropriate limitation of liability provisions in accordance with Commodity Groupings, 
•	seek approval of a limitation of a contractor’s liability from TB, or 
•	do nothing
2.5.3	Financial Responsibilities 
•	Neither TB nor PWGSC assume liabilities on behalf of departments. The authority to make decisions concerning limitation of the contractor’s liability to the Crown or indemnification rests with the department and is never transferred either to PWGSC, TB or TBS. 
•	Regardless of whether TB or PWGSC authorities are used to establish limitation of liability clauses, or TB authority is used to establish indemnification of the contractor clauses the financial responsibility for any liabilities that may arise remains with the departments responsible for initiating the procurement. 
•	Except in emergency situations, departmental Senior Financial Officers (SFOs) or their delegates are normally required to indicate that the department accepts the risk and the potential financial responsibility that may result from acceptance by the department of substantive transfer of risk from a contractor. Note however, that the policy introduces no new obligations on SFOs. It simply requires that the limitation of liability be “signed off” where analysis shows there is a substantive transfer of risk. The policy assists SFOs in diligent execution of their responsibilities by ensuring these higher risk situations are clearly brought to their attention.
2.5.4	Requirements for Specific TB Authority
•	Even though the requirement is not specified in the policy, the exceptional circumstances as listed under sections 8.4 and 10.5 of the Policy will apply to submissions seeking either indemnification of the contractor authority or limitation of third party liability authority.
•	Treasury Board approval is required in all instances dealing with an indemnification of the contractor where the Crown accepts any responsibility for losses or damages the contractor may suffer or be liable for.
•	With the exception of procurement under Model 3, Treasury Board approval is also required in all instances dealing with contractor third party liabilities.
•	TB approval is not required for indemnification of the contractor in situations where the risk is considered to be under the control of the Crown or where the losses are attributable to the Crown’s fault. 

3.	
Case Study Workshop: Part I
3.1	Introduction of Four Case Studies:
#1	Development and implementation of an IM/IT application to provide Canadian businesses with single window access to government risk management programs and services.	
#2	A Personal Services Contract	
#3	Development and publication of a regulatory standard for safety of blood and blood components and the safety of organs and tissues used in transplants. Purpose is to avoid transmission of infectious diseases through use of blood, blood components, organs, or tissues. Includes transportation and delivery of tissues and tissue related products. 	
#4	Development and delivery of a portion of an Earth observation satellite system being developed by the European Space Agency for the purpose of acquiring topographical data of the Earth. The Canadian Space Agency will contract with industry for the selected satellite hardware components to be delivered to the foreign government agency. A specific Canadian company owns the intellectual property on which the design of those components is based.	

•	For each Case Study apply the decision tree to assess which model applies by addressing the following questions:
	Question	Comments	
1	Do Government Contract Regulations and Contracting Policy cover this procurement?	 	
2	Does this procurement involve proven technology, well-established methodologies and standards?	 	
3	Is this a commonly available commodity or service?	 	
4	Are there many, very few, or only one supplier(s) that can provide the commodity or service?	 	
5	What are the significant foreseeable risks, if any? 
Who is accountable for the risk?	 	
6	What is the likelihood and consequence of the occurrence of an adverse event?	 	
7	Is this procurement complex, with a high level of uncertainty: is the requirement unique, unproven, and/or developmental? 	 	
8	Does this contract require non-standard modification of a previously proven good or service?	 	
9	Are specific patents, copyrights, proprietary information, specialized technical knowledge or unique intellectual property required for the conduct of the work under this contract?	 	
10	Is this procurement directly associated with an existing international collaborative procurement agreement?	 	
11	Is there an identical procurement underway from the same contractor by another customer and this procurement would be part of the same “production run”?	 	
12	Is this procurement directed at satisfying a health, public safety, regulatory, economic or statutory obligation that has traditionally been the responsibility of the Government of Canada? Is this procurement directly related to a requirement for federal certification and/or establishment of a standard?	 	

3.2	Additional Exercise Material:
•	Other examples of procurements to use for discussion and application of the policy.

Model	Sponsor	Procurement Description	
1	CC	Telecommunications services including transmission of voice, video or data from one Government of Canada user to any other on an as-and-when-required basis	
1	DND	Hercules aircraft engine upgrade	
1	DND	Purchase of Chemical Agents	
1	HC	Editing services for a major report and associated communications materials on consultations completed across Canada in establishing new health regulations.	
1	HC	Perpetual, non-exclusive, freely transferable software licenses, installation, training and one year of maintenance and support services for the licenses for a Scientific Data Management System. In addition, the data management system contractor must develop a custom solution for laboratory document management that will integrate into the data repository layer of the core infrastructure.	
1	HRDC	Supply, delivery, installation, integration, and provision of maintenance and support during the three-year warranty/maintenance period for single, dual and quad processor servers. Two National Master Standing Offers (NMSOs) will be established with an anticipated validity of 5 years. Human Resources Development Canada (HRDC) will acquire these systems by issuing call-ups directly to one of the two vendors or, for requirements that exceed the call-up limits, by requisitioning PWGSC to conduct a Request For Volume Discount	
1	Patent Office	Software-based patent infringement search application. Incorrect denial of patent based on suspected patent infringement indicated by software results in damages or losses to third party.	
1	TBS	Professional services contract for assessment, review and amendment of a policy implementation guide and development of training material on the policy.	
1	TC	Supply and delivery of aircraft engines for use on the government’s fleet of aircraft. These engines are to be retained in inventory for use in remote operating bases where the government’s existing support contract with the manufacturers cannot meet the established standards for dispatch reliability.	
2	AAFC	Development and implementation of an IM/IT application to provide Canadian producers with single window access to agricultural risk management programs and services.	
2	CCRA	Operation, enhancement and maintenance of Crown-developed income tax processing software. Coding error results in denial of a deduction resulting in interest penalties to a tax filer (third party)	
2	CIDA	Informatics professional services by a team of up to 18 resources as and when requested - including enhancements to existing software	
2 or 3	CSA	Satellite launch	
2	DFAIT	Development of new IT Infrastructure for Export and Import Control - example of delay in issuing a permit due to a software application error which then results in damages or loss to a third party.	
2	DND	CF-18 Aircraft Modernization	
2	DND	CP-140 Aurora System Support	
2	DND	Maritime Helicopter Procurement	
3	DND	Challenger Aircraft Engine Procurement	
3	DND	Radar Laser Warning Receivers for Griffon Helicopter	
3	DND	Transportation of Chemical Agents for Disposal	
4	DIAND	Professional services contract for negotiation of agreements with Aboriginals	
4	HC	Development and publication of a regulatory standard for safety of blood and blood components and the safety of organs and tissues used in transplants. Purpose is to avoid transmission of infectious diseases through use of blood, blood components, organs, or tissues. Includes transportation and delivery of tissues and tissue related products.	

4.	
Dealing with Risk
4.1	Overview of the Steps in the Process

4.2	Risk Management 
•	Decision making with regard to indemnification or limitation of contractor liability clauses in contracts is all about risk management - good decision-making requires an understanding of risk management.
•	This training is not intended to cover the subject of risk management in detail –focused, specialized training should be undertaken for that purpose. This training is intended to include basic exposure to risk management in the specific context of procurement.
•	It is not considered necessary to manage to zero or in some cases even minimum risk. The level of risk that the Crown is prepared to accept should reflect the optimum balance between the potential benefits and the potential adverse consequences of undertaking a particular course of action. For example, even though the potential adverse consequences are estimated to be high, the potential benefits may be as high or higher – the risk may be worth taking.
•	The TBS Risk Management Framework describes the process for risk management as consisting of identification, analysis or assessment, development of options, decision, implementation of the decision; and evaluation and review of the decision.
•	In the context of procurement contracts, these steps are simplified as:
•	Identification and Risk Review – describe, categorize the potential causes and events that may hinder achievement of the procurement objectives
•	Assess the risks – measure probability and severity or consequences of the event
•	Review options in context – do nothing, standard clauses, use specific authorities or seek special authority.
•	Implement the chosen option – seek authorities and approvals as appropriate, add clauses to RFP and contract
4.3	Risk Identification
•	What is “risk”? 
•	TBS Risk Management Framework definition: “the uncertainty that surrounds future events and outcomes. It is the expression of the likelihood and impact of an event with the potential to influence the achievement of an organization's objectives.”
•	It can also be described as “deviation from the expected” that can sometimes produce unexpected positive or negative outcomes. Risk means uncertainty in outcomes that may threaten the achievement of goals and objectives. 
•	Upside aspects of risk are not of concern, since they represent favourable outcomes. Risk management focuses on the downside features of risk, which are of concern. 
•	Recognizing risk 
•	Identifying scenarios that represent a threat to achievement of the program or procurement’s objectives. Start with identifying everything that could go wrong and generating a decision tree of outcomes from those. 
•	Placing risk in context 
•	Risk must be placed in the context of potential rewards: typically higher risk leads to higher rewards. Opportunity without risk doesn’t exist. 
•	Risk is not good or bad: it is tolerable or intolerable under the circumstances. Risk must be viewed in the context of relevant variables.
•	The key to assessing risk is estimating its potential impact. The type of risk does not govern its importance
•	There are no absolutes or fixed formulas for assessing risk.
4.4	Risk Review
•	The first step is to identify the risks and to conduct a preliminary risk review to determine whether there are significant risks warranting further more detailed consideration, assessment and management. This consists of a high level, cursory but critical, risk assessment.
•	The key question to address in a risk review is:  Are there any potential events in the execution of the contract that could result in:
•	injury or loss of human life, or jeopardy to public health and safety;
•	significant detrimental impact on core business operations and/or services, or a loss of, or damage to equipment and systems, including data corruption;
•	placing the government into breach of contract or default on a business agreement and/or cause a lawsuit against the government or, damage the government’s reputation;
•	precluding the government from meeting a regulatory commitment;
•	preventing a partner, client or customer that is dependent on the government from delivering a program requirement
•	If the risk review judges that these potential circumstances will not occur or that their probability of occurrence is extremely low, no limitation of liability clause should be included in the contract.
4.5	Risk Assessment
•	Risk Assessment is a highly esoteric and somewhat qualitative and subjective undertaking and does not lend itself readily to precise and exact measurement. It deals with probabilities and uncertainties. 
•	Nonetheless in accordance with the key principles of the policy, it requires an objective effort to assess risk and to measure it in concrete, understandable, and measurable terms in order to determine how the language in the contract should deal with the occurrence of unexpected and/or undesirable events.
•	Assessing the risks means measuring the probability and severity or consequences of the event. Risk is frequently measured in terms of financial impact or consequence. An “expected value” of the risk is calculated based on the probability and the severity of the occurrence of the event.
•	Coverage of different risk terms is necessary to enhance and standardize their understanding of the language of risk. Different terms are used at different times in risk related matters, and it is important to understand the specific meaning of each term. Speaking the language assures risk issues and requests are understood when communicated among those involved in risk issues.
•	Understanding risk terminology: 
•	Probability: the likelihood that a given event will occur
•	Severity of consequence: the magnitude of the losses, damage or other adverse outcomes caused by the occurrence of the event. 
•	Expected values = estimated value of consequence or event usually measured in dollars multiplied by the probability of that event occurring – i.e. a loss estimated to cost $100,000 with a probability of 15% would have an expected value of $15,000.
•	Frequency
•	Worst case
•	Likely
•	Potential
•	Occurrence
•	Aggregate – the additive effect of multiple risks
The challenge of valuing risk
•	Too many variables 
•	Few, if any universally accepted methodologies
•	Inherent bias – (i.e. - “Figures don’t lie but liar’s figure”) 
•	How to access experts and what to expect

Risk Factor	Low Risk condition	Medium Risk Condition	High Risk Condition	Risk Score	Mitigation Options	Revised Score	Risk Value	
Program Risk	Proven solution, implemented before in similar circumstances	Chosen solution or approach to satisfying the requirement is unusual but not unique – e.g. a new application of a proven solution	Chosen solution or approach to satisfying the requirement is unique, or untested 		Change chosen solution; conduct prototype trials; 			
Schedule	Considerable time to complete project, no identifiable threats (0)	Sufficient time to complete; few potential threats (2)	Aggressive schedule; several potential threats to completion (5)		Require performance bond and liquidated damages, Extend schedule Mitigate Threats Establish and track performance milestones			
Financial strength	Large, financially stable contractor (0)	Established C; some indication of financial problems (2)	New or unproven C; limited financial resources or known financial problems (5)		Bidder eligibility requirements; Require performance bond or comparable security insurance (if applicable to problematic risk)			
Complexity and technological risk	Non-complex, proven methods, technology and capability (0)	Moderately complex, some unproven methods, technologies or capabilities (4)	Highly complex, several unproven methods, technologies or capabilities (8)		Bidder eligibility requirements; Require performance bond or comparable security incremental acceptance testing			
People	Experienced personnel; dedicated to project –internal and external (0)	Some experienced and capable personnel available for project (2)	Minimal experience, questionable calibre of personnel or lack of commitment (5)		Designate personnel to be assigned to project; Assign experienced internal management personnel			
Natural risks	No significant natural risks identified (0)	Some natural risks identified that may impact expected results (2)	Significant potential for natural risks that may disrupt project and impact expected results (5)		Mitigate natural risks; Develop contingency mgmt. Plan; Require insurance			
Legal risks	No significant natural legal risks identified (0)	Some legal risks identified (3)	Significant legal risks identified that may significantly impact expected results and generate liability (7)		Mitigate legal risks; Require insurance for insurable risks; Require contractor to assume risks contractually			
Interdependency	No significant interdependencies identified (0)	Some interdependencies identified that may impact expected results (3)	Major interdependencies identified that may significantly impact expected results (6)		Understand, remove or mitigate interdependencies; Develop contingency mgmt. plan			
Table 1  Key Risk Factors and Risk Assessment Worksheet

From PWGSC - SOS Integrated Risk Management Framework Risk List
•	Asset Risks: theft, loss, damage, security, public utility service hiatus, hazardous or dangerous material
•	Governance Risks: legal claims; media exposure, 
•	Personnel Risks
•	Business Risks

From LGS Business Risk Assessment Methodology 
•	Mission criticality risk;
•	Safety criticality risk;
•	Legal/regulatory/public image risk; 
•	Profit/revenue risk; and 
•	External risk to third parties.
•	Technical risk; and
•	Resource risk - a composite of human resource, facilities and tools, budget and schedule (i.e. time);

Occasionally it may be necessary to rely on support from expert staff. 

4.6	Managing Contract Risks
•	Management of contractor liability is one element of the overall process of managing risks inherent in contractual relationships 
•	Starts at RFP/bidding stage
•	Policy does not address the larger question of effective procurement management in the larger context of business, procurement and communications planning.
•	Management of contractor liability cannot be done in isolation from the larger contractual context. A limitation or indemnification clause cannot be analyzed outside of its contractual context. The impact of a limitation or an indemnification clause must be assessed taking into consideration the effect it would have on the remainder of the contract and it must be analyzed in the context of the entire contract. The contract clauses must be internally consistent and complementary and must not conflict or contradict.
•	As a first step limitation or indemnification clauses must be analyzed within the context of the factors in Table 1. “Key Risk Factors and the Risk Assessment Worksheet”. Only after such an exercise is complete will officials be in a position to identify risks under the control of the contractor that would require limitation and what the impact of such limitation might have on the management of the contract or the project.
•	(Place holder: Reference to Sales of Good Act and impact on risk transfer for commercial contracts – AL to add later)
4.7	Risk Mitigation/Risk Transfer Contract Clauses
•	Specific risk transfer clauses and how they work must be understood. 
•	Understanding risk transfer clauses, what they look like, how they work and how these clauses can be applied to either first or third parties
•	Limitation of liability
•	Indemnity
•	Hold harmless
•	Disclaimer
•	Waiver
•	Exculpatory clauses
•	Insurance requirements
•	Managing a limitation of a contractor’s third party liability is far more difficult if at all possible, than managing first party limitations of liability, and is generally viewed as inherently more serious. Parties to an agreement can agree to alter their respective rights but rights of uninvolved third parties cannot be restricted. 
•	In case of damages to third parties, Courts will interpret any clause having an impact on the possible ways of recovery in light of the possibility of finding third party relief.
•	The Balancing Risk concept:
•	Balancing the amount of risk to bring the deliverable product or service to an acceptable level against the price paid for the good or service.
•	Silence respects this balance in that each party will be responsible for its own acts irrespective of the initial level of risk involved. Risk transfer clauses alter this balance.
•	The contract can be seen in terms of clauses that could reduce the level of risk to the Crown and clauses that could increase the level of risk to the Crown depending on how they are worded. The following table lists many of the most common provisions, many of which are already covered in the standard terms and conditions.

Purpose of Clause	Effect on Risk to the Crown	
	Reduce	Increase	
Bonds or other Financial Security requirements	X		
Design specifications and acceptance test requirements	X		
Exculpatory provisions	X	X	
Indemnification of the contractor		X	
Indemnification of the Crown	X		
Limitation of liability	X	X	
Liquidated damages provisions	X		
Mandatory insurance provisions	X		
Prevailing law 	X	X	
Responsibility for subcontractor performance	X		
Risk of loss or damage provisions	X	X	
Schedule Milestones (delivery, completion)	X		
Specific, stringent performance, reliability, compatibility, interoperability, etc., requirements	X		
Subrogation of Claims 	X	X	
Termination for convenience provisions	X		
Vague, ill-defined performance requirements		X	
Waiver of Claims	X	X	
Warranties and Express Warranties	X		
Warranty disclaimers		X	
•	Of particular note in the above table are examples of measures to counter contractor resistance to higher limitations of liability considered by the Crown to be appropriate to the level of risk. These are highlighted in italics in the table above.
•	Expressions to recognize and pay attention to: 	hold harmless, disclaimer, and waiver. 

5.	Case Study Workshop: Part II
5.1	Define an Action Plan
For each Case Study, apply the decision making process to determine who should take action and what action must be taken. Following are questions to address in considering incorporation of limitation of liability and indemnity provisions in contracts, according to which procurement Model applies.  The Action Plan Checklists in Annex B provide ready reference to indicate the steps that are required for each Model type procurement.
5.1.1	For Model #1:
•	If there is an applicable Commodity Grouping?
•	Is use of the Commodity Grouping considered cost effective? Are there any mitigating or unique circumstances? 
•	Within departmental contractual authorities?
•	One of four actions: 
•	Silence (and no LoL clause)?
•	Standard indemnification-of-the-Crown clause?
•	Limit on 1st Party liabilities and Silence. Limit must exceed expected value of risk.
•	Limit on 1st Party liabilities and standard indemnification-of-the-Crown clause. Limit must exceed expected value of risk.
•	Requisition through PWGSC or seek TB Approval to use Commodity Grouping
•	If No Commodity Grouping applies: 
•	Foreseeable risks? – if not – use silence, or standard indemnification clause
•	If there are foreseeable risks: 
•	Review risks and prepare financial assessment of potential liabilities
•	Check financial capacity of potential contractor 
•	One of four actions:
•	Silence (and no LoL clause)?
•	Standard indemnification-of-the-Crown clause?
•	Limit on 1st Party liabilities and Silence. Limit must exceed expected value of risk.  Requisition through PWGSC or seek TB approval.
•	Limit on 1st Party liabilities and standard indemnification-of-the-Crown clause. Limit must exceed expected value of risk.  Requisition through PWGSC or seek TB approval.
•	Request for PWGSC action or seek TB approval
5.1.2	For Model #2:
•	Conduct a Risk Assessment – program, financial, technical, legal, schedule, management etc (Table 1) and prepare financial model of risks.
•	Develop performance and risk management strategy.
•	If too risky, decide whether or not to proceed.
•	Exceptional circumstances? (Excessive liability, unusually serious risk, non-insurable risks, prohibitively expensive risk insurance, no viable alternative)
•	If no exceptional circumstances:
•	Silence (and no LoL clause)?
•	Standard indemnification-of-the-Crown clause?
•	Limit on 1st Party Contractor liabilities, and Silence. Limit must exceed expected value of risk.  Requisition through PWGSC or seek TB approval. 
•	Limit on 1st Party Contractor liabilities, and standard indemnification-of-the-Crown clause. Limit must exceed expected value of risk.  Requisition through PWGSC or seek TB approval.
•	If exceptional circumstances:
•	Limit on 1st Party Contractor liabilities, and Silence. Limit may be less than expected value of risk.
•	Limit on 1st Party Contractor liabilities and indemnification-of-the-Crown clause. Limit may be less than expected value of risk
•	Obtain SFO’s approval
•	Requisition through PWGSC or seek TB approval
•	PWGSC to prepare annual report to TBS of its transactions under this scenario.
5.1.3	For Model #3:
•	Review the proposed contract clauses – any contractor-controlled risks proposed to be transferred to the Crown? – consider program, financial, technical, legal, schedule, management, etc. i.e. are there any substantive risks likely to be transferred to the Crown?
•	If no substantive transfer of risk to the Crown: 
•	Limit on 1st and/or 3rd Party Contractor liabilities. Limit must exceed expected value of risk.
•	Requisition through PWGSC or seek TB approval
•	Substantive transfer of risk to the Crown:
•	Based on a Standard (Model 1) procurement? 
•	Review risks and prepare financial assessment of potential liabilities
•	Check financial capacity of potential contractor
•	Based on a Complex (Model 2) procurement?
•	Conduct a full Risk Assessment – program, financial, technical, legal, schedule, management, etc (Table 1) and prepare financial model of risks.
•	Check financial capacity of potential contractor
•	Identify specific risks to be addressed
•	Develop performance and risk management strategy
•	For all Model 3 with substantive transfer of risk:
•	If too risky, decide whether or not to proceed.
•	Obtain SFO’s approval
•	Limit on 1st and/or 3rd Party Contractor liabilities. Limit may be less than expected value of risk.
•	Requisition through PWGSC or seek TB approval.
•	PWGSC to prepare annual report of its transactions under this scenario.
5.1.4	For Model #4:
•	Conduct a broad-based risk assessment – program, policy, financial, technical, scientific, legal, schedule, management, etc. (address all factors listed in Sections 8.2 and 10.3 of Policy)
•	Seek counsel from broad spectrum of advisors – interdisciplinary, public and private, academia. 
•	Develop performance and risk management strategy.
•	Develop detailed financial model of risks
•	Identify specific risks to be addressed in contract clauses 
•	If too risky, decide whether or not to proceed.
•	Exceptional circumstances? (Excessive liability, unusually serious risk, non-insurable risks, prohibitively expensive risk insurance, no viable alternative)
•	If no exceptional circumstances:
•	Silence (and no LoL clause)?
•	Standard indemnification-of-the-Crown clause?
•	Limit on 1st Party Contractor liabilities, and Silence. Limit must exceed expected value of risk.  Requisition through PWGSC or seek TB approval. 
•	Limit on 1st Party Contractor liabilities, and indemnification-of-the-Crown clause. Limit must exceed expected value of risk.  Requisition through PWGSC or seek TB approval.
•	If exceptional circumstances:
•	Limit on 1st Party Contractor liabilities, and Silence. Limit may be less than expected value of risk.
•	Limit on 1st Party Contractor liabilities and indemnification-of-the-Crown clause. Limit may be less than expected value of risk
•	Obtain SFO’s approval
•	Requisition through PWGSC or seek TB approval
•	PWGSC to prepare annual report to TBS of its transactions under this scenario (Model 4 with substantive transfer, exceptional circumstances)

6.	
Examples of Limitation of Liability/Indemnification Clauses
6.1	Risk Management/Mitigation
1.	From the PWGSC Supply Policy Manual:  http://www.pwgsc.gc.ca/sacc/clause_list2-e.html?id=C6000C&date=current .  Firm Price contracts.

“No increase in the total liability of Canada or in the price of Work resulting from any design changes, modifications or interpretations of specifications, made by the Contractor, will be authorized or paid to the Contractor unless such changes, modifications or interpretations, have been approved, in writing, by the Contracting Authority, prior to their incorporation into the Work. The Contractor shall not be obliged to perform any work or provide any service that would cause the total liability of Canada to be exceeded, unless an increase is authorized by the Contracting Authority.”
2.	From the PWGSC Supply Policy Manual: http://www.pwgsc.gc.ca/sacc/clause_list2-e.html?id=C6003C&date=1991/06/01.  In cost reimbursable contracts which do not contain a ceiling price and limitation of expenditure contracts.
 “Canada's liability to the Contractor under this Contract shall not exceed $_____, unless otherwise authorized in writing by the Minister. The Contractor shall not be obliged to perform any work or provide any service that would cause the total liability of Canada to exceed the said sum, unless an increase is so authorized. The Contractor shall notify the Minister as to the adequacy of this sum when it is 75 percent committed or four (4) months prior to the final delivery date stated in the Contract, whichever comes first. If the notification refers to inadequate funds, then the Contractor shall, at the same time, provide a new estimate of the total cost of the Work. Notwithstanding the foregoing, the Contractor shall notify the Minister and provide a new estimate of cost if, at any time, the Contractor considers the funds provided are inadequate for the completion of the Work. The giving of such notifications and estimates shall not increase Canada's liability over the said sum. 
The Contractor shall not adopt any change or changes in the design or in the specifications or in the Work that would cause an increase in the cost of the Work, until the Contractor receives written authorization of the Minister (under design change procedure or otherwise). Costs incurred without such authorization shall not be reimbursed by Canada.”
3.	DND Draft RFP for BV ISS (Basic Vehicle (Helicopter) In Service Support) MODEL CONTRACT (http://www.dnd.ca/admmat/mhp/rfp/volume_10/vol_10_model_contract.pdf) 

”Article 9.8 Limitation of Contractor’s Liability
9.8.1 	Notwithstanding anything else contained in the Contract, the Contractor's liability to Canada for all losses suffered by Canada as a result of any breach of the Contractor’s obligations to Canada under the Contract (including any such liability in tort, negligence or any other cause of action, and including liability for indirect or consequential damages), except any breach of the warranty provisions of the Contract, shall be limited to $(TBD) per government fiscal year.
9.8.2 	This Article shall not in any way limit the Contractor’s liability to any third party (or to Canada for any amount in respect of the Contractor’s liability to a third party that Canada is required to pay as a result of joint and several liability) or require any contribution by Canada in relation to any such third party liability of the Contractor.”

6.2	Indemnification
1.	Additional Clauses Software Acquisition- Statistics Canada: (http://www.statcan.ca/english/about/contract/software.pdf )

“Indemnity Against Third-Party Claims

1)	The Contractor shall indemnify and save harmless Canada, the Minister and their servants and agents from and against any damages, cost or expenses or any claims, action, suit or other proceeding which they or any of them may at any time incur or suffer as a result of or arising out of:

(a)	Any injury to persons (including injuries resulting in death) or loss of or damage to property of others which may be or be alleged to be caused by or suffered as a result of the performance of the Work or any part thereof, except that Canada and the Minister shall not claim indemnity under this section to the extent that the injury, loss or damage has been caused by Canada, and

(b)	Any liens, attachments, charges or other encumbrances or claims upon or in respect of any materials, parts, work-in process or finished Work furnished to, or in respect of which any payment has been made by Canada, and

(c)	Payment of royalties and claims for damages based upon the use of infringement of any patented invention, registered industrial design, trade mark, copyrighted work, trade secret, or other intellectual property right, that results from or is alleged to result from the carrying out of the Contract or the use of disposal by Canada of anything furnished by the Contractor under the Contract.

The Contractor shall participate in any claims, action or proceeding arising under Subsection (1) and no such claim, action or proceeding shall be settled without the prior written approval of the Contractor and Canada.

2)	If such a claim is made or appears likely to be made, Canada agrees to permit the Contractor to enable Canada at the Contractor's expense to continue to use the equipment or software or to modify or replace it with equipment or software which has published specifications equal or superior to the equipment or software being replaced. If the Contractor determines that none of these alternatives is reasonably secure the right to continue to use the equipment or software or Canada may require the Contractor to accept the return or the equipment or software and to refund all monies paid to the Contractor under the Contract for the equipment and software, as well as amounts paid for services and license and development fees.

3)	The provisions of Subsections (1) and (2) do not apply in situations where the Contractor was instructed by Canada topurchase a specific item of equipment or software from a specific source on behalf of Canada. In this case, the Contractorshall ensure that its subcontract for the equipment or software states that "If a third party claims that equipment or softwarethat the subcontractor supplies under the Contract infringes any intellectual property right, the subcontractor, if requested todo so by either the Contractor or Canada, will defend the Contractor and Canada against that claim at the subcontractor'sexpense and will pay all costs, damages and legal fees that a court finally awards". In the event that the Contractor is unable to incorporate this into its subcontract, then it without receiving written notice from Canada that the level of intellectual property right infringement protection is acceptable.”

2.	Canadian Forces Personnel Support Agency: CF SHOW TOUR - TERMS AND CONDITIONS for Personnel Support for a Show Tour: (http://www.cfpsa.com/en/psp/showtours_bid/terms.asp )

”Indemnity Against Third-Party Claims 
The Contractor shall indemnify and save harmless Canada, the Minister and their servants and agents from and against any damages, costs or expenses or any claim, action, suit or other proceeding which they or any of them may at any time incur or suffer as a result of or arising out of: 
Any injury to persons (including injuries resulting in death) or loss of or damage to property of others which may be or be alleged to be caused by or suffered as a result of the performance of the Work or any part thereof, except that Canada and the Minister shall not claim indemnity under this section to the extent that the injury, loss or damage has been caused by Canada, and 
Any liens, attachments, charges or other encumbrances or claims upon or in respect of any materials, parts, work-in-process or finished work furnished to, or in respect of which any payment has been made by, Canada. 
The Minister shall give notice to the Contractor of any claim, action, suit or proceeding referred to in para 48 and the Contractor shall, to the extent requested by the Attorney General of Canada, at its own expense participate in or conduct the defence of any such claim, action, suit or proceeding and any negotiations for settlement of the same, but the Contractor shall not be liable to indemnify Canada for payment of any settlement unless it has consented to the settlement”
1.	The Contractor shall indemnify and save harmless Canada, the Minister and their servants and agents from and against any damages, costs or expenses or any claim, action, suit or other proceeding which they or any of them may at any time incur or suffer as a result of or arising out of 
a)	any injury to persons (including injuries resulting in death) or loss of or damage to property of others which may be or be alleged to be caused by or suffered as a result of the performance of the Work or any part thereof, except that Canada and the Minister shall not claim indemnity under this section to the extent that the injury, loss or damage has been caused by Canada, and 
b)	any liens, attachments, charges or other encumbrances or claims upon or in respect of any materials, parts, work-in-process or finished work furnished to, or in respect of which any payment has been made by, Canada. 2. 
2.	The Minister shall give notice to the Contractor of any claim, action, suit or proceeding referred to in subsection 1 and the Contractor shall, to the extent requested by the Attorney General of Canada, at its own expense participate in or conduct the defence of any such claim, action, suit or proceeding and any negotiations for settlement of the same, but the Contractor shall not be liable to indemnify Canada for payment of any settlement unless it has consented to the settlement.
6.3	Valuation: 
“The federal government's policy of underwriting its own risks precludes payment of any excess valuation and/or transportation charges beyond the specified FOB point (the point at which title of goods passed to the federal government). Goods will be covered to the carrier's maximum liability and value will be declared only when additional costs will not be incurred.”

Annex A	Case Study Worksheets
1	Case Study #1:	New IM/IT Application Development and Implementation
Case Study #1	A new IM/IT Application Development and Implementation	
Requirement	Development and implementation of an IM/IT application to provide Canadian businesses with single window access to specific income-based risk management programs and services.	
Estimated Contract Size ($)	$43,000,000	
Business Objective	To provide a wide spectrum of integrated income-based services through optimal use of web-based access, data management and processing technologies.	
Supporting Information	The project is being proposed to be undertaken in three phases under a single umbrella agreement reached through a competitive bidding process.  A detailed bid evaluation process is established in the RFP.  Due to the developmental nature of the design phase there are many uncertainties as to which design is optimal and therefore contracts for Phases 2 and 3 will be based on government approval of the design resulting from Phase 1.   The Crown reserves the right to exercise the option to procure required COTS software and ancillary hardware products directly from OEMs and provide them as GFA to the Contractor.
This contract is made more difficult by the fact that the technology associated with IM/IT solutions changes rapidly. In addition due to the nature of the information required in income-based risk management programs, privacy and security of business’ information will be important	
Model #	(Describe reasons for choice)	

Case Study #1	New IM/IT Application Development and Implementation	
Review, Analysis and Comments
•	Any exceptional circumstances?		
Risk Review
Risk Assessment
Potential Liabilities	(Identify specific risks that should be addressed by LoCL clauses)	
Risk Management Strategy
RFP actions (specify LoCL requirements)		
Contractor financial capacity		
Contract Actions
•	Specific Risk Management Clauses 
•	Limitation of Contractor Liability Clauses 
•	Indemnification Clauses		

2	Case Study #2:  A Personal Services Contract
Case Study #2 	A Personal Services Contract	
Requirement	A services contract for: 
1.	Critical assessment, review and amendment of a the implementation guide for a new policy.
2.	A training guide including a course summary, course outline, lecture material, case studies and training worksheets for training in the implementation of the new policy.
3.	Support, assistance, and advice in the implementation of a training program on the new policy. Support includes review of documentation, participation in meetings, input to and/or critical assessment of documentation as required.	
Estimated Contract Size ($)	$21,000	
Business Objective	Provide advice, training material and assistance in the implementation of a new policy. 	
Supporting Information	While the information involves complex situations and involves writing about issues touching on a variety critical issues, the work performed under the contract is relatively simple and does not require decision-making on the subject matter content.   The deliverable documentation is subject to acceptance by the Project Authority, however, the Government, not the Contractor, is responsible for the approval, issuance and use of both the Implementation Guide and the Training Guide. Describes a very common situation across government.	
Model #	(Describe reasons for choice)	

Case Study #2:  Worksheet #2
Case Study #2	A Personal Services Contract	
Review, Analysis and Comments
•	Any exceptional circumstances?		
Risk Review
Risk Assessment
Potential Liabilities	(Identify specific risks that should be addressed by LoCL clauses)	
Risk Management Strategy
RFP actions (specify LoCL requirements)		
Contractor financial capacity		
Contract Actions
•	Specific Risk Management Clauses 
•	Limitation of Contractor Liability Clauses 
•	Indemnification Clauses		
1	
3	Case Study #3:	Development of a Health Regulatory Standard
Case Study #3	Development of a Health Regulatory Standard	
Requirement	Development and publication of a regulatory standard for safety of blood and blood components and the safety of organs and tissues used in transplants. 	
Estimated Contract Size ($)	$200,000	
Business Objective	To establish a standards-based regulatory framework in Canada to avoid transmission of infectious diseases through use of blood, blood components, organs, or tissues. 	
Supporting Information	Health Canada has assumed a public commitment to develop a Canadian General Standard for blood safety and a standards-based approach to regulation that offers an appropriate balance between prescriptive standards and the need for flexibility to adapt to innovations and emerging hazards.  In order to honour this commitment to develop and update the regulations in a timely fashion HC collaborates with Standards Development Organizations.  The project would contract with one of those organizations to coordinate the development and maintenance of standards for blood and blood components and for tissues and organs used in transplantation and includes issues related to transportation and delivery of tissues and tissue related products.
HC will participate in the development and maintenance of the content of the Standard.
Since this contract deals with health and safety issues such as infectious disease transmission, there are significant potential consequences of risks associated application of the standards.  The contractor would not control any decisions related to reference to or enforcement of National Standards in federal regulations.  Third party claims could be extremely large and the cost of insurance correspondingly extremely high if available.	
Model #	(Describe reasons for choice)	

Case Study #3:  Worksheet #2
Case Study #3	Development of a Health Regulatory Standard	
Review, Analysis and Comments
•	Any exceptional circumstances?		
Risk Review
Risk Assessment
Potential Liabilities	(Identify specific risks that should be addressed by LoCL clauses)	
Risk Management Strategy
RFP actions (specify LoCL requirements)		
Contractor financial capacity		
Contract Actions
•	Specific Risk Management Clauses 
•	Limitation of Contractor Liability Clauses 
•	Indemnification Clauses		

4	Case Study #4:	A Portion of a New Earth Observation Satellite System
Case Study #4	A Portion of a New Earth Observation Satellite System	
Requirement	Development and delivery of a portion consisting of several components and sensors, of an Earth observation satellite system being developed by the European Space Agency (ESA). The Canadian Space Agency will contract with Canadian industry for the selected satellite hardware components to be delivered to the foreign government agency. 	
Estimated Contract Size ($)	$11,000,000	
Business Objective	Acquiring topographical mapping data of the Earth, for use in by OGDs in environmental and resource monitoring and management of Canadian territory.  (The data will be shared among all system participants)	
Supporting Information	This project is developmental by nature and involves many international participants.  However, ESA controls the design, specification and control of the overall program.  A specific Canadian company owns the intellectual property on which the design of the Canadian-supplied satellite components is based.  This company has not licensed any other company to produce this equipment. This procurement bears a close resemblance to a cost shared contribution agreement or transfer payment in that it involves contributing a portion of a development being undertaken by another participant (ESA).	
Model #	(Describe reasons for choice)	

Case Study #4:  Worksheet #2
Case Study #4	A Portion of a New Earth Observation Satellite System	
Review, Analysis and Comments
•	Any exceptional circumstances?		
Risk Review
Risk Assessment
Potential Liabilities	(Identify specific risks that should be addressed by LoCL clauses)	
Risk Management Strategy
RFP actions (specify LoCL requirements)		
Contractor financial capacity		
Contract Actions
•	Specific Risk Management Clauses 
•	Limitation of Contractor Liability Clauses 
•	Indemnification Clauses		

Annex B	Action Plan Checklists

The following Action Plan Checklists are intended to be used to assist contracting and procurement staff in ensuring that all key elements of indemnification of the Crown and limitation of contractor liability have been appropriately considered.   These checklists indicate by model type, the key steps and actions that must be undertaken.
Note that assessment specifically of contractor financial capacity as well as development of performance and risk management strategies do not lend themselves readily to a simple black or white, yes or no approach.  The level of assessment can be represented as a continuum from minimal to comprehensive and detailed.  These checklists attempt to reflect that continuum by the use of the two broadly defined levels as described following:
MINIMAL

BASIC	
 This level indicates that a basic check is required to verify that the contractor is a viable, ongoing business, registered to do business in Canada, and that appears to have the resources necessary to complete the work.  The basic checks should include a review of contractor financial statements and annual reports.  It may also entail brief review of written project plans and risk management plans, and require records checks for previous business with the government and/or telephone calls to business registration organizations and/or credit bureaus.  

COMPREHENSIVE & DETAILED 	
This level indicates that the basic checks described above are required and in addition, additional comprehensive and detailed research and analysis is required including review of the proposed project and contract by specialists in financial, risk, legal, scientific contracting, program and policy domains.  This includes analysis of contractor financial statements, annual reports, annual and strategic business plans, market and profit performance forecasts and any existing contractor performance reports (for previous work done).  It also includes development of risk and financial models.  This level of examination requires a well-documented formalized approach with extensive consultation with all participating stakeholders. 

MODEL	Risk Review	Detailed Risk Assessment	Contractor Financial Capacity Check	Performance and Risk Management Strategy	CONDIITIONS?	CLAUSE	SFO Approval	Department
Authority	PWGSC Annual Report Required	
MODEL 1 (EXISTING COMMODITY GROUPING)	YES- BY PWGSC	NO	COMPREHENSIVE  - BY PWGSC	COMMENSURATE WITH THE LEVEL OF RISK - BY PWGSC	Management must consider whether unique operational requirements impose additional risks	Silence	NO	YES	NO	
						Indemnification of the Crown	NO	YES	NO	
						LoL & Silence:  
Limit to exceed Expected Value to achieve non-substantive transfer of risk	NO	NO	NO	
						LoL & Indemnification of the Crown:  
Limit to exceed Expected Value to achieve non-substantive transfer of risk	NO	NO	NO	
MODEL 1 (NO EXISTING COMMODITY GROUPING)	YES	NO	BASIC	COMMENSURATE WITH THE LEVEL OF RISK	VERY LIMITED OR NO RISK	Silence	NO	YES	NO	
						Indemnification of the Crown	NO	YES	NO	
					FORESEEABLE RISKS	Silence	NO	YES	NO	
						Indemnification of the Crown	NO	YES	NO	
						LoL & Silence:  
Limit to exceed Expected Value to achieve non-substantive transfer of risk	NO	NO	NO	
						LoL & Indemnification of the Crown:  
Limit to exceed Expected Value to achieve non-substantive transfer of risk	NO	NO	NO	

MODEL	Risk Review	Detailed Risk Assessment	Contractor Financial Capacity Check	Performance and Risk Management Strategy	CONDIITIONS?	CLAUSE	SFO Approval	Department
Authority2	PWGSC Annual Report Required	
Model 2	NO	YES	COMPREHENSIVE & DETAILED	COMPREHENSIVE & DETAILED INCLUDING DETAILED FINANCIAL MODEL OF RISK	NO EXCEPTIONAL CIRCUMSTANCES	Silence	NO	YES	NO	
						Indemnification of the Crown	NO	YES	NO	
						LoL & Silence: Limit to exceed Expected Value to achieve non-substantive transfer of risk	NO	NO	NO	
						LoL & Indemnification of the Crown:  Limit to exceed Expected Value to achieve non-substantive transfer of risk	NO	NO	NO	
					EXCEPTIONAL CIRCUMSTANCES	LoL & Silence:  
Limit may be less than Expected Value	YES	NO	YES	
						LoL & Indemnification of the Crown:  
Limit may be less than Expected Value	YES	NO	YES	

MODEL	Risk Review	Detailed Risk Assessment	Contractor Financial Capacity Check	Performance and Risk Management Strategy	CONDIITIONS?	CLAUSE	SFO Approval	Department
Authority2	PWGSC Annual Report Required	
MODEL 3 (BASED ON STANDARD)	YES	NO	BASIC	BASIC	NO SUBSTANTIVE TRANSFER	Limit on 1st and/or 3rd Party liabilities  
Limit to exceed Expected Value to achieve non-substantive transfer of risk	NO	NO	NO	
					SUBSTANTIVE TRANSFER	Limit on 1st and/or 3rd Party liabilities  
Limit may be less than Expected Value	YES	NO	YES	
MODEL 3 (BASED ON COMPLEX)	NO	YES	COMPREHENSIVE & DETAILED	COMPREHENSIVE & DETAILED	NO SUBSTANTIVE TRANSFER	Limit on 1st and/or 3rd Party liabilities  
Limit to exceed Expected Value to achieve non-substantive transfer of risk	NO	NO	NO	
					SUBSTANTIVE TRANSFER	Limit on 1st and/or 3rd Party liabilities  
Limit may be less than Expected Value	YES	NO	YES	

MODEL	Risk Review	Detailed Risk Assessment	Contractor Financial Capacity Check	Performance and Risk Management Strategy	CONDIITIONS?	CLAUSE	SFO Approval	Department
Authority2	PWGSC Annual Report Required	
Model 4	NO	YES	COMPREHENSIVE & DETAILED	COMPREHENSIVE & DETAILED INCLUDING detailed Financial model of risk	NO EXCEPTIONAL CIRCUMSTANCES	Silence	NO	YES	NO	
						Indemnification of the Crown	NO	YES	NO	
						LoL & Silence: Limit to exceed Expected Value to achieve non-substantive transfer of risk	NO	NO	NO	
						LoL & Indemnification of the Crown:  Limit to exceed Expected Value to achieve non-substantive transfer of risk	NO	NO	NO	
					EXCEPTIONAL CIRCUMSTANCES	LoL & Silence:  
Limit may be less than Expected Value	YES	NO	YES	
						LoL & Indemnification of the Crown:  
Limit may be less than Expected Value	YES	NO	YES	

Annex C	
List of Trainees
Name	Position	Organization	Phone/e-mail	

				

				

				

				

Annex D	Logistics Information
Location: (Address, room number)	
	
Facility, Audiovisual and other equipment	
	
Supporting facilities (Coffee, Lunch, Washrooms)	

	

Annex E	Lecture Presentation Slides

Annex F	Policy on Limiting Contractor Liability in Crown Procurement Contracts

Annex G	Implementation Guide - Limiting Contractor Liability in Crown Procurement