Indemnity clauses in design and construction contracts
An indemnity clause in a contract allocates risk for claims or for loss or damage between the parties to the contract, so that if one party suffers a loss, the other party will reimburse them. Indemnities are primary obligations that remain even if the contract is set aside.
Indemnity clauses are commonly used on construction projects to allocate risk between; the client and contractor, the client and consultants or the contractor and sub-contractors. In complex contracting situations indemnity clauses may run throughout the contractual chain.
Construction contracts may, for example, include a clause requiring the contractor to indemnify the client against expense, liability, loss or claim in respect of personal injury or death of any person arising out of the works. Or they may require the contractor to indemnify the client against breaches of contract such as non-payment of statutory fees. In addition, designers appointment agreements may include an indemnity in respect of claims for breach of professional duty.
Typically, designers are required to hold professional indemnity insurance to cover such a liability and this requirement is now increasingly asked of contractors with design responsibilities. (See Legal indemnities for a list of other situations where insurance can indemnify against losses).
Performance bonds and parent company guarantees may also include indemnity clauses requiring the surety to indemnify the client against default by the contractor.
The precise consequences of an indemnity clause will depend on its wording and how it is read in relation to the rest of the contract. One particular area where differences can be significant is whether a clause requires an indemnity only against losses caused by the party providing the indemnity, whether they exclude negligence on the part of the indemnitee, or whether they cover all losses no matter how they were caused. For example, a professional indemnity insurance policy is not dependent on allocating blame to the indemnifier.
Because of these differences, and in order to accurately define the extent of losses covered, indemnity clauses require very precise drafting, and due to complex case law they are becoming increasingly detailed. It is important therefore that the parties to a contract read indemnity clauses carefully and fully understand the obligation they are agreeing to.
[edit] Related articles on Designing Buildings Wiki
Featured articles and news
Not buildings. Happy holiday from DB.
Future Homes Standard: Industry calls for more ambition
As the Government FHS consultation finally closes.
Improving government projects with data and AI
Enabling better outcomes, efficient modern delivery and influential leadership on government projects.
BSRIA Living Laboratory Innovation Challenge
Final days for submission, closing March 29.
Windows, their frames, forms, factors and functions.
The hidden subtleties of U-Value calculations
Different contexts and what to include as variables.
A brief run down with related articles.
Electrical sector calls for safer public EV charge points
Serious concerns about electrical safety in the public domain.
Building Blocks manifesto presented to parliament
Architects Declare call in for support of five critical policies.
The four elements of project management with APM
Analysis, expectations, collaborative communication and partnerships.
City of London launches Heritage Building Retrofit Toolkit
Empowering owners to initiate necessary adaptations.
Guidance on RAAC in listed buildings
Published by Purcell, endorsed by IHBC, SPAB and C20.
Learning from the past.
Reluctance to hire people with criminal convictions revealed
Employing People with Criminal Convictions Report.
Tackling unconscious bias; Women's History Month
Personal reflections, as the last week of March approaches.