Defining Drone Agreements
What are drone contracts?
No, it does not mean a contract that marries you to your drone. A drone contract is a legally binding agreement with certain essential elements to manage helicopters without pilots in them, otherwise known as drones.
Drone contracts make things such as sub-contracting possible. This is important because the development of the drone industry has created the need for many entrepreneurs to cross-collaborate through contracting out their work to drone operators as either prime contractors , subcontractors and/or vendors.
Drone contracts may allow a drone operator to work for a government, private company, small business in order to do aerial photography, inspections, surveys or even provide transportation for goods from point A to point B. This is why they are sometimes called helicopter contracts, as they get confused with traditional contracts for helicopter work.
Key Provisions in Drone Agreements
While the precise terms of any drone contract will vary depending on the parties’ particular needs, experiences and strategies, some clauses are essential in any drone contract. The parties should include in their contract:
Scope of Work—This critical clause defines the specific tasks to be performed by the parties. The scope of work should be detailed. For example, if the parties are developing new drone technology, the clause could specify the scope of testing or an outline of the product development schedule, including deliverables and phase completion.
Liability and Insurance—This clause outlines the liability of the parties and apportion the risk among the parties. It should also identify any insurance requirements. The parties should consider the types of insurance that would be relevant to the performance of the contract and to the allocated liability as determined in the contract. Insurance should always be required from all parties and sub-contractors as a matter of course.
Payment/Compensation—This clause provides for the remuneration of parties under the contract. Of course, contractors and sub-contractors should ensure they comply with any payment laws applicable to the jurisdiction in which the work is performed (for example, prompt payment laws).
Delivery Schedule—This clause provides for the method and schedule for delivery of the drone or drone-related technology or services. If the parties have any requirements segregating deliveries into priority deliveries, those requirements should be included in the contract.
Governing Law and Forum Selection—This clause identifies the governing law and the venue that will apply to any dispute and helps the parties ensure that their dispute will be brought before someone they can have confidence in.
Drone Operator Legal Issues
From a legal perspective, there are a myriad of issues that can arise for drone operators during any stage of the process, from meeting insurance obligations to complying with licensing and subcontractor requirements. A cloud based tool that can meet these compliance requirements will go a long way in preventing legal problems.
In addition to the costs associated with maintaining insurance, drone operators must also check with their client in respect to their insurance specifications. When entering into a contract drone operators should request copies of the insurance the clients maintain. Any subcontractors engaged by the drone operator must also be adequately covered by insurance (including if necessary excess liability insurance). This is typically a requirement of contracting with government entities who have strict insurance requirements.
As mentioned in the previous section in the context of "subcontractors," when entering into a contract with another business and/or government entity, the drone operator should be aware of any contractual flow down obligations. Depending on the final form of contract, the drone operator may be obligated to use only those subcontractors and suppliers that have been approved by the client. Any breach of this provision or failure to meet licensing requirements can result in the client requiring a refund of any amounts paid prior to or during the contract term.
While it may not be a requirement of the contract, if a drone operator needs to create reports or provides other documentation to the client, it is not uncommon that the client would also require approval prior to passing the same or any part of the same to a third party nor making any public disclosures.
If claim occurs, the drone operator should be prepared in their contract to hand over to the insurer any information and documentation requested by the insurer and make available their employees as witnesses for interviews and/or depositions.
Drafting a Drone Service Agreement
When drafting a drone services agreement, you’ll want to go beyond simply listing the services and compensation involved. It’s important that your contract closely references the service you’re performing and sets out the obligations of both parties.
Some useful clauses, even if you’re only doing a little work here and there, include:
• Scope of Work: this section sets out what the drone operator is being hired to do (aerial photography, mapping, etc.). The scope of work should be as detailed as possible and include all elements that the photograph or mapping is to show. A scope of work is a great way to shield you from liability in the event of a dispute.
• Rate of Compensation: this section should set out the full cost of services and any extra costs (for example, mileage for long trips). It should also set out when payment is due.
• Use of Images/Videos: many drone services agreements we’ve seen contain a clause that states that the images or videos taken by the pilot are the property of the clients. However, the client then has complete control over where those images or videos can be used in the future – including the ability to sell them to someone else later. If you use photographs or videos to market your own drone services, you’d want to revoke the client’s ability to use them once they are paid to you.
• Termination Clause: even though it’s no fun to think about when you’re talking about your new drone business, things can go wrong and the client has the ability to terminate. It could be a mistake in the services you’ve provided or just a real lack of communication – either way, a termination clause allows either party to end the contract.
• Default Remedies: similar to a termination clause, a default remedies clause simply sets out what happens if one party defaults (does not perform) or breaches the contract. This will save you some negotiation time if something goes wrong.
These clauses are not exhaustive and there are a number of other clauses you may want to have. The important thing is to make sure that the contract comes from your professional needs. For example, if you’re getting hired to do a promotional video using a drone, you’ll want to make sure that you can display that video in your portfolio upon completion!
Drone Contracting Mistakes
One of the most common mistakes in drone contracting is a failure to update contracts with new developments in the law-an oversight which can be costly to parties who do not know of the changes or who are unable to easily amend a long-term agreement. For example, the California Business and Professions Code section 22651.7, which establishes a process through which a person who has had a drone seized may apply to the Department of Motor Vehicles for the return of the drone, was passed in 2016. A number of commercial contracts, however, do not contain references to this code section or its procedures. If a company were to have drones seized at an event such as an accident or a natural disaster and did not know about the code section and its procedures, it could face trouble by directly contacting the government entity that seized the drone, when it should instead directly contact the DMV. A simple change to a contract that includes a provision incorporating the code section’s procedures directly into the contract would fix this issue.
Another common pitfall is unclear terms. Providing definitions next to the term itself may seem meaningless, but it is particularly useful for parties who do not have expertise in the field. A statement such as "the phrase ‘autonomous drones’ shall mean any and all drones which can navigate without human input , including but not limited to drones which are operated by a computer program first developed by the military" is clear and includes details that will prevent potential misunderstandings later on.
Faulty drafting can also create liability. A droning provider that has agreed to indemnify the client in case of a claim can easily find itself responsible for claims that the provider does not intend to cover if the clause language is ambiguous. Consider a simple clause offering indemnification for "any claim, suit, or cause of action relating to the provided services." If there is a dispute as to whether an assault by an employee at an event where drones were being operated is covered, the client could prevail by arguing "being assaulted at a service event is related to the service provided." If the drone provider does not intend to provide coverage for assault, it may need to file a lawsuit and begin incurring costs in order to attempt to have the situation adjudicated-which could take months.
A good way to avoid issues such as these is to have a policy of checking contracts regularly to see if they reflect the current state of the law and startup rules are sufficiently detailed and not ambiguous in their provisions.
Next Level Drone Contract Negotiations
Contracts are designed to balance the risk of loss or damage to the parties. The same principles apply in negotiating drone contracts, but the reality is that a client is requesting a drone operator to do something new and (relatively) unproven in the world of commercial aviation. As such, the balance will be skewed by the perceived capabilities of drones. The language of the contract should reflect the parties’ views of their relative capabilities.
One of the best ways to balance risk is to agree to specific terms in the contract. Rather than having a general "indemnification" provision, try to identify any relevant requirements that may impact liability. For example, the Federal Aviation Administration (FAA) requires that UAS operators maintain liability insurance of no less than $1,000,000. Likewise, you might include your own standard equipment specifications, training standards, and/or pre- and post-operations checklists. Any of these contract provisions can help protect you from liability.
Contractual assumption of liability is a way for UAS operations to work around FAAA regulations. The FAA has stated that if you, as the drone operator, are required to indemnify the client or another party from any and all claims arising out of the operations, then it could find that the operator is behaving as a business operator of the aircraft, rather than as a hobbyist. Since the FAA does not allow hobbyists to be compensated, they might find that you are misrepresenting your status under FAA regulations.
Upcoming Developments in Drone Contracting
As drone technology continues to advance and drone regulation develops at both the federal and local levels, the demand for drone contracting expertise is expected to grow. New technologies, such as delivery drones, are already testing the limits of existing regulations. The U.S. Federal Aviation Administration (FAA) has already approved the use of commercial drones for delivery operations under special waivers, and similar waiver programs are likely to spread beyond the FAA in the years to come. Contractors that incorporate new technologies into their portfolios may find themselves in a stronger position to negotiate and maintain contracts.
Concerns about privacy and security surrounding drones persist . For example, individuals frequently raise concerns that drone contractors can do things like:
Regulatory developments, both at the state and local levels, may offer additional guidance on these and other contracting issues concerning privacy and security. It is likely that contractors will be considering many of the same issues as new regulations are developed and that new technologies will have an even greater impact on future drone contracts. As drone technology continues its rapid rise toward ubiquity across many industries, contracting parties will have to consider what role—and to what extent—contract language should play in determining liability for emerging risks.