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
Prioritising tax considerations.
Reviewing the Double Diamond Design model
The four D creative process: discover, define, develop and deliver.
National Cyber Security Centre initiative is announced.
The impact of COVID-19 on global HVAC&R markets
Reviewing trends and projections.
Legislation will establish initiatives to move towards net zero.
Status determination statement
How to document contractor employment status.
Social distancing goes high tech
Tech tools to help manage people and space post-pandemic.
Eclectic Edwardian architecture
A style that ranges from mock Tudor to arts and crafts to the 'Wrenaissance'.
Free guide from Secured by Design.
Building Back Better: Circularity
BREEAM strategy for sustainability and the circular economy.
Free tool to improve the construction programming process.
Building services verification
Are buildings doing what they're supposed to be doing?
Cities with quick access to everything by foot or bike.
The pressures and pinch points of global destinations.