Confederation of Democratic Simulators
Draft Analysis of Proposal for Private Development of Simulators
On the 25th March 2008, the Secretary of the New Guild Board was contacted to comment upon a proposal concerning the private development of simulators.
A. Proposal
In a brief form, it is proposed:
“we are planning to propose private expansion of the CDS, within our regional plan and consistent with our themes, or new themes approved by the RA, with some form of regulatory oversight. The Guild, under its charter, can't do the oversight -- but could very easily do expansions without RA meddling under such a policy -- for regulatory oversight, we would need some governmental structure -- like the old AC, but I wouldn't want to bring back the old AC and its arcane structure -- so, 1. what do you think of this concept and 2. What problems do you see in implementing itâ€
An informal chat followed, mentioning the importance of several points for discussion:
structure of dependencies and Quis custodiet ipsos custodes
increase in the number of public roles / creation of “an executive agency under the Chancellor -- or as an independent brach of govt with appointed or elected positionsâ€.
The Board Secretary mentioned at this point that the New Guild (NG) is studying the creation of a Building Approval Committee (BAC), in relation to the point above.
Relation of the CDS, NG and future contractors (defined to be “developersâ€) from a client/contractor perspective, including the elaboration of specs. The proposal here refers that the new simulators' layouts would be “private initiative with public oversight“, or, in alternative, “a subdivision - -built by contractor as part of a city -- then sold to buyers, contractor gone -- but the city still remains as the regulating government (...) rents to CDS as usual.†Boad Secretary confirmed at this point that the CDS would keep jurisdiction over the public space, including maintenance.
The Board Secretary requested permission to transcript the chat into notes (from which she quotes in italics), and later requested permission also to discuss the issue with more people, so as to be able to give as complete an analysis as possible. These people comprise experts in several areas, members from the CDS Gov branches, and members from all political factions.
Upon completion of this analysis, it will be simultaneously delivered to the proponent and published in the CDS forums for public notice.
B. Issues raised by this proposal
Upon discussion between the creators of this comment, it was apparent that this proposal raises issues in several areas, which are listed as follow
1. NG's current and future role in the CDS
2. Building Approval committee (BAC)
3. Quis Custodiet and structures of dependencies
4. Definition of specifications and contractual processes
5. Mutual warranties and ADR of conflicts between parties and Simulator ownership during/after development
6. Economical/Financial models for the CDS
7. Intellectual Property rights, Permissions and Backups
This list does not pretend to be complete. It is possible that new issues arise during the public discussion.
1. Role of the New Guild
At the moment, the New Guild (NG) is a public chartered NGO, totally manned by volunteers, with several missions, including the production of content for the CDS sims.
The NG is divided in two bodies:
a Board, or Assembly-General, which is open to all citizens, and which is an executive/administrative body which plans and carries out projects.
a Faculty, which is a meritocrat self-appointed body which oversees education and is preparing the NG quality certification process – then controlling effectively the standards for quality in the CDS content.
The relation between the CDS and the NG is defined in a dual manner:
there is a client/contractor relation (CDS asks for work, that NG executes)
there is a consultative relation (CDS can ask technical advice from NG for any issue in its sphere)
As we see, these two relations mirror somewhat the difference between the Board and Faculty bodies – though, at the moment, the distinction between Board and Faculty is a bit blurred since Faculty is still self-organizing.
It is our opinion that if there is a clearer separation of Board and Faculty in the charter, with a clearer definition of the functions, boundaries and limits between the bodies, the NG can then perform its double role of contractor and regulator without conflict of interests in the situations previewed by the proposal.
In the case of the Board becoming a contractor in a competitive environment, then the Board must also acquire the function of Agent, which currently does not exist in the Charter.
Any alteration to the Charter will demand RA approval.
2. Introducing the Building Approval committee (BAC)
The NG has in its agenda for the meeting of April the 6th the creation of a volunteer structure to review private buildings in the CDS territory.
This volunteer structure is proposed to be composed only of Faculty members whose function is to be technical consultants to Chancellor. Previous discussions of the issue at NG meetings have enhanced the advisability of putting in place practices of a preventive/educative essence when dealing with the private building in the CDS territory, contrasting with the punitive or even nonexistent nature of the waiver system in practice.
The NG aims thus at solving two issues with the BAC: help the Chancellor change the nature of the private building processes in the CDS territory, and at same time, answer to the multiple requests it has received on many doubts concerning covenants, suitability of structures and materials, etc.
The procedures of the BAC will be discussed at the meeting of the 6th, with topics such as the creation of temporary skyboxes above the 512m high mark (which would need a review of the CDS covenants overall), the creation of processes for submitting projects or models, possible simplification of covenants, etc. A report will doubtless follow to request the RA the discussion of the necessary amends in the current legislation.
It is our opinion that the BAC can, in the situation described by this proposal, expand its scope and help the Chancellor in technical assistance during the contract, building, and final approval and delivery of the developers' private simulators.
Necessarily, legislation will have then to be created for the effect.
As for the Board, we think that if we can effectively separate further the two bodies in the Guild charter, the Board can position themselves as contractors also for sim development without conflict of interest.
3. Structure of dependencies and Quis custodiet ipsos custodes
We do not think necessary that a new government branch or public officials be needed, and propose instead the following model:
RA as usual, approves themes and the master plan. It also elaborates a specifications draft for negotiation with developers.
Chancellor negotiates contracts with developers, based on the RA elements.
Chancellor oversees the work, (becoming effectively the Client proxy), with resource to BAC.
SC provides Alternative Dispute Resolution (ADR) if necessary.
This allows us not to create any other government branch, effectively distributing the checks and balances between the existing branches, without conflict of interests, and without increase in size of the CDS Government structures.
Additional legislation can and must be passed to insure that the Chancellor, Representative Assembly members, Scientific Council Chairs and Faculty members belonging to BAC do not have a conflict of interests when a private development process occurs. This can be done in several ways, which the RA can study; we remind that there is a precedent for RA members to announce business interests - perhaps that precedent can be invoked again by the RA as regards this matter and all the involved.
4. Definition of specifications and contractual processes
There is a potential source of conflict in the negotiation process. Understandably, a developer may want to maximize profit by, for instance, proposing to build an impossible number of plots, no public infrastructure or builds, etc. The CDS, on its side, has interest to maintain an overall quality throughout its territory, guarantee the existence of community spaces, etc – not to even mention matters of a political nature such as representativity, eventual local government models, etc.
A further risk comes from a poorly written contract. The contractual process must be regulated by legislation, even insuring, if needed, a final approval by the RA before the signing of the contract. The details of the contractual process must be defined with some care, so as to preview situations like public consultation, public complaints, etc. And at the very least, the contract should specify the terms of the covenant that will apply to the final simulator upon delivery:
- number of plots between x and y
- connections to roads and rivers of other simulators as foreseen in the master plan
- terraforming according to the master plan
- homogeneity of the theme on the simulator
- vegetation
- proportionality of residential vs. commercial spaces in simulators
- etc...
Similarly, the developer would state, before the contract is signed, all clauses on the proposed covenant that they might deem "unsellable". This will avoid situations where the developer will refuse to make any changes on the grounds that the resulting simulator might have no market value (eg. too small/too big plots; too many restrictions on the size of the houses inside the plots; etc.).
The Representative Assembly should approve a "contract template" to allow for initial negotiation by the Chancellor with the developer. A certain leeway will be given to the Chancellor on the negotiation process, under supervision by the RA.
Once the developer finishes their work, the Chancellor should be required to post all reviewed criteria, and get official expert opinion (possibly from the BAC) on whether a delivered simulator conforms to the specifications as contracted. Payment to the developer will be delivered upon the public release of a confirmation statement by the Chancellor.
5. Mutual warranties and ADR of conflicts between parties and Simulator ownership during/after development
We suggest that the contract also establishes the following points:
The simulator itself will be a guarantee (the developer will only release it upon receiving the payment; the CDS will pay only when the simulator is confirming to the specifications)
The party not holding the simulator as guarantee will deposit an escrow with a third party (internal or external to the CDS)
The jurisdiction of the contract will be the CDS and ADR will be provided by the Scientific Council; however, both parties can agree on an external third party (registering the CDS ADR centre in Second Life or even outside of Second Life)
Interest might be due if the CDS fails to pay on the delivery date
This escrow can be defined in three ways: a) fixed value; b) percentage of the value of the contract, c) multiplier of the tier value of the simulator.
The RA will need to define the escrow system as part of the negotiation process and include it on the contract template
6. Economical/Financial models for the CDS
We suggest three possible models, which are:
1. CDS owns the simulator and just subcontracts the building work. This is a model similar to subcontracting to the New Guild, and well-established under the current legislation. The RA can opt to open up a public contest for bidding on the building. The New Guild Board would be a bidder against potential outsourced contractors. The sales of the new simulator's parcels will be done by the CDS as usual (the Estate Owner handles the sales; the Executive, through its PIO, does the promotion of the new simulator).
2. CDS owns the simulator from the beginning, but the work is done by the developer/investor, who also sells the plots. The marketing is shared — the developer uses, as part of their sales pitch, the concept of being integrated in a community that has been in operation in Second Life® for several years, providing security (reducing griefing) and alternative dispute resolution, and which allows parcel owners — "citizens" — to have a vote and get elected to the Government that manages the simulator.
3. The developer buys the simulator, and builds it according to the theme set by the RA, their specifications, and Chancellor + BAC supervision. Under this model, the developer is also responsible for sales (and uses the same sales pitch as on point 2. above). Once a set threshold of sales are reached (ie. the developer covers their costs with buying the simulator and building it, and takes their share), the simulator is transferred to the CDS. The new citizens start paying "citizen's monthly fees" to the CDS as any other citizen.
Each model has advantages and disadvantages:
1. On this model, the developer just bids for building. From the CDS' perspective, it might be useful if there is financial support to buy and develop a new simulators, but the NG Board has no available workforce to start a new building project in a timeline established by the RA. It allows, with enough cash in the CDS, to build several simulators simultaneously. The Chancellor will act as an overseer of compliance with the theme, specifications, guidelines, and quality assurance (with BAC). The contract will establish milestones, and partial payments as each milestone is achieved. In case the developer defaults on the contract, since it is hard to enforce sanctions, the CDS will never lose all the investment, but simply continue to work from the point the developer left.
2. This model is similar to 1 in terms of mutual warranties. However, there is further cause of conflict, since the developer is also acting as a sales agent. The developer will wish to buy as fast as possible — and with the lowest possible cost — to the point that the quality is so low as to be unacceptable for the CDS. The RA will need to establish clear expectations set about marketing activity and speed of sale, and be flexible to adapt them to rapidly changing market conditions. There will arise conflicts as the developer wants to push the CDS to accept the work "as is" in order to be able to start selling immediately. In fact, there is a temptation to sell before the simulator is finished (since under this model the developer will only see a revenue if he starts doing sales!). The argument that the CDS will provide for marketing might not be strong enough: in certain cases, some developers might already have an established network of contacts, sub-agents, contacts at the media, and be able to independently guarantee the sale of all parcels at a quick profit — leaving the new citizens with awful designs that have to be fixed at a later stage. Also, the developer will have to pay their own workforce!
3. This model is at lowest risk for the CDS. Effectively, the developer accepts all risks, in exchange for a simulator integrated into a vibrant community. However, the prospective customers will demand from the developer that they have buildings with the same quality as the rest of the CDS! In effect, by trying to sidestep the NG Faculty's requirements of aesthetics and quality levels, the developer might remain with a simulator full of tenants that he will have to continue to support. The worst case scenario, then, is that the developer "uses" the good name of the CDS to gather new tenants but never releases the simulator to the CDS! In this model, assuming that the developer can't use resources like the ToS, press pressure or outside RL laws to force CDS to accept the simulator, the only remaining risk is reputational (a possible abuse of the CDS' good name; or, conversely, defamation of the CDS by an unhappy developer) but not financial.
Briefly, thus, model #1 has high financial risk for the CDS (the same as outsourcing to the Guild), but zero risks for the cohesion of the CDS. It has low risk for the developer if they act in good faith. Model #2 is a mix — the developer will be using the good name of the CDS to increase sales. The financial risk for the CDS is lower (no costs of building). Cohesion risk can be high with a low-quality developer who just wants a quick sale. Model #3 has zero financial risks for the CDS, but very high cohesion risks — ultimately, the simulator might never join the CDS at all!
The financial risks can be minimised by the escrow system and a contract establishing how the simulator is, at the end, moved to be part of the CDS mini-continent. Thus, it's possible that a developer acting in bad faith (in model #3) would, contractually, lose the right to join the CDS mini-continent and the value in escrow.
In the case of models #2 and #3, pre-sales might be done officially by the CDS and conditioned on delivery of an acceptable simulator region. If the CDS decides not to accept the simulator, or if the developer decides not to offer it, pre-purchasers should be given the option of going ahead with their purchase in a non-CDS simulator, or of getting their deposit back in full.
7. Intellectual Property rights, Permissions and Backups
It is our opinion that the current rules on IP licensing and Content Archive should apply too to the privately developed simulators. Therefore, the developer must be ready to agree contractually to provide the IP release form as currently defined, and also a copy of content to the CA Archivist. The current forms and process can be easily adapted by the RA or Chancellor to this new situation, since they guarantee the CDS' right to use the content throughout its territory and in special PR/marketing occasions.
Also, the contract must include a clause in which the contractor guarantees that they own all licenses on IP rights over all content used. This clause actually not only defends the CDS, but also the bona fide developer.
Sunday, April the 6th 2008
