Beauty parade could turn ugly as Galileo consortium unravels

The biggest project in the European market is proving to be one massive headache for the lawyers. The Galileo satellite navigation project, designed to rival the US global positioning system (GPS) network, is a much-lauded, much-publicised pan-European operation that is meant to be the showcase of EU public and private sector cooperation.

But all it has done so far is highlight the political divisions in Europe, cause delays and bring the project's future into question.

A September deadline has been set for the commercial make-up project documentation to be finalised, but there is plenty of water yet to go under the bridge.

Eight companies make up the combined private sector consortium charged with making the Galileo project a reality. They include Aena (Spain), Alcatel (France), EADS Space Services (France/Germany), Finme-ccanica (Italy), Hispasat (Spain/Portugal), Inmarsat (UK), Thales (France) and TeleOp (Germany).

The head lawyers, each charged with protecting their respective company's interests and maximising profitability during the negotiations, include Aena's Jesus Fernandez Rodriguez, Pascal Durand-Barthez of Alcatel, Finmeccanica's Luciano Acciari, Pedro Ramón and Cajal Agüeras of Hispasat, Inmarsat's Rupert Pearce and Patrice Durand of Thales.

Inmarsat, represented by Pearce, is leading the consortium, but sources suggest that the role "is like getting two magnets of the same polarity together".

The divisions between the consortium members run deep. Three separate consortia were at one stage vying for the mandate to be the private sector backers to the project. When one consortium failed in 2005, the other two merged and the Galileo Operating Company (GOC) was born.

The GOC will take on responsibility for the financing, deployment and operational phases of the whole programme.

Of the eight GOC members, EADS, Inmarsat and Thales are known to favour Freshfields Bruckhaus Deringer, which was appointed by the consortium iNavSat. The Eurely consortium of Alcatel, Finmeccanica and Vinci appointed Clifford Chance.

When the two consortia merged, it was agreed that both Freshfields and Clifford Chance would go head-to-head in a beauty parade for the much-coveted role of external legal adviser.

A third consortium, Eutelsat, advised by Allen & Overy (A&O), pulled out of the running in August 2004. Two member companies, Aena and Hispasat, have made the jump into the GOC, but the move failed to open the door for A&O to compete with Freshfields and Clifford Chance.

The Lawyer understands that Freshfields was favoured following that beauty parade, but there has been no official word, and crucially no instruction, for the firm yet from the GOC as yet.

"The decision to pick legal counsel for the consortium is fraught with all the usual issues faced when eight large European companies try to come to a common decision," said a source from within the GOC following the beauty parade.

What price a fly-on-the-wall ticket for that discussion between eight leading European general counsel?

The GOC went into the first round of negotiations with its public sector counterpart, the Galileo Joint Undertaking (GJU), in February without legal counsel. The GJU is a joint venture between the EU and the European Space Agency (ESA) to oversee the development phase of the Galileo programme. In contrast to the GOC, at the first trip to the negotiating table the GJU had a stacked team involving senior figures from within the EU and ESA, as well as Lovells project finance partners Charles Robson and Mike Matheou.

Privately, the GJU is worried about the GOC's apparent bickering and infighting and where that leaves the timetable for the project. The Lawyer understands that discussions have been held at the highest levels of the EU regarding the matter. Although the first stages of negotiations have now been completed and there is an agreement of principles in place, things are going to ramp up in the very near future.

"Negotiations up to this point have not been as fruitful as we would like them to be," said a GJU source. "There's a certain degree of dysfunctionality between consortium members."

Indeed, The Lawyer understands that the GOC has yet to produce a consortium agreement. And while the GOC exists in name, it has also failed to finalise the documentation making it a legal entity to negotiate.

"There's no tangible evidence that the consortium has got its act together and organised itself," said the source. "It's surprising, and very frustrating, from everyone's point of view. For the lawyers they appoint, they'll have their work cut out."

Lovells, which benefited from more bungling to swoop in and score the mandate to advise the GJU, has been on board with the public sector since the third quarter of 2004, and has been racking up the hours.

The Lawyer reported (27 September 2004) on the "farcical" situation that saw Linklaters shunted out of the role after the EU revised its procurement amount for legal services.

Linklaters has not managed to get a look back in and has been left to fight against A&O for a lender's role. Nice work if you can get it, with a swathe of banks expected to want in for the E3.3bn (£1.85bn) project.

Robson and Matheou admit that achieving the commitment between the GOC and GJU ahead of the September deadline for a heads of terms agreement is "a challenge".

"For us, we have all of May to develop the first draft of the heads of terms, which will be the subject of very detailed negotiations with the GOC in June and July," said Robson.

That leaves Pearce with a month to get his European colleagues to agree on the choice of Freshfields and bring the firm up to speed ahead of the knuckles-down horn-locking that is going to ruin its lawyers' plans for summer tans.

Freshfields, Clifford Chance and GOC members declined to comment for this article.

david.middleton@thelawyer.com