On June 25, Hogan Lovells’ Government Contracts Practice published a client alert on the June 21 interim rule amending the Federal Acquisition Regulation (“FAR”) by preventing federal agencies from agreeing to terms of service (“TOS”) agreements and End User License Agreements (“EULAs”) with open-ended indemnification clauses. Through the interim rule, President Obama’s Administration is attempting to curb the practice of contracting officials agreeing to unlimited indemnification provisions in standard contracts for web-based social media applications.
The Client Alert, authored by Partner Michael D. McGill and Associate C. Peter Dungan, provides background on the interim rule and the challenges associated with enforcing indemnification provisions in government contracts, describes the significant regulations that the interim rule adds to the FAR, and offers practical pointers to contractors that may be impacted by the new rule.
McGill and Dungan write:
Contractors, therefore, should be prepared to respond to agencies unwilling to agree to their standard TOS. At the same time, contractors should objectively assess which of their standard terms may not be enforceable even if the government agrees to them. . . . Generally, an indemnification provision will be upheld where the potential liability to the United States is limited to an amount that is known at the time of the agreement within the amount of available appropriations . . . . [C]ontractors should craft their indemnification provisions, to the extent possible, to (a) limit the government’s liability to the amount of appropriated funds available at the time of payment, and (b) disclaim any expectation that Congress will appropriate additional funds to meet any deficiency in the event of loss.
A copy of the new client alert can be downloaded here.