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
Net zero electricity grids BSRIA guide NZG 5/2024
Outlining the changes needed to transition to net zero.
CIOB Global Student Challenge 2024
Universitas Indonesia wins for second year running.
New project and cultural district described in detail.
The nature of EPCs, crticism and inaccuracies.
History, issues and redesign.
From waste recycling to energy performance the hierchy.
An introduction to WERCS and WEEE responsibilities
Dealing 2 million tonnes of waste equipment a year.
Global BACS Market: analytics and optimisation
A BSRIA glance at building automation and control systems.
What it is and how to use it.
Types of insulating plaster by binder and insulant.
Investors in People: CIOB achieves gold
Reflecting a commitment to employees and members.
Scratching beneath the surface; a guide to selection.
ECA 2024 Apprentice of the Year Award
Entries open for submission until May 31.
UK gov apprenticeship funding from April 2024
Brief summary the policy paper updated in March.
For the World Autism Awareness Month of April.