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Topics: Change Management, Construction, Risk Management
Indemnity Clause in the contract-
Could the Indemnity clause in the contract harm your business ? What are the possibilities ?Please share your experience.
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Chandra, the harm I have experienced by unilateral indemnity or "hold harmless" clauses was early in my career. The harm to me was twofold: 1) lost potential revenue caused by trying to negotiate the clauses out of the contracts and, when unsuccessful, rejecting the job, and 2) paying a lawyer to review the contracts in the first place.

Fortunately I learned my lesson quickly. If there is overwhelming jeopardy connected with the job that would affect your portion of it, don't spend any time trying to negotiate; move on. Otherwise, sign the contract and get the work.

Clients hold all the cards on this contract item. And if something bad did happen to you as a result of your client's action (or inaction) there's a chance a court could nullify the clause altogether and award damages, despite you having agreed to it. At least that's how it works in the US.
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1 reply by Chandrashekhar Thatte
Feb 20, 2017 12:37 AM
Chandrashekhar Thatte
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Cris, I agree with you .In India,such clauses are taken for granted as standard term and generally pose no problem to the contractor.However,the possibility of such clauses harming your business interest can not be ruled out.
Put a cap on liability.
Make indemnity mutual.
Limitation on liability should cover any indemnity
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1 reply by Chandrashekhar Thatte
Feb 20, 2017 12:42 AM
Chandrashekhar Thatte
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Your suggestion is most welcome but doesn't find acceptance by most of the client .
In my humble opinion, indemnity clauses might not be negotiable between contract parties in construction projects and in my career for over 15 years in the domain, I have never seen that those clauses alone have caused any harmful things to the other party of the contract.
Feb 17, 2017 8:37 AM
Replying to Cris Casey
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Chandra, the harm I have experienced by unilateral indemnity or "hold harmless" clauses was early in my career. The harm to me was twofold: 1) lost potential revenue caused by trying to negotiate the clauses out of the contracts and, when unsuccessful, rejecting the job, and 2) paying a lawyer to review the contracts in the first place.

Fortunately I learned my lesson quickly. If there is overwhelming jeopardy connected with the job that would affect your portion of it, don't spend any time trying to negotiate; move on. Otherwise, sign the contract and get the work.

Clients hold all the cards on this contract item. And if something bad did happen to you as a result of your client's action (or inaction) there's a chance a court could nullify the clause altogether and award damages, despite you having agreed to it. At least that's how it works in the US.
Cris, I agree with you .In India,such clauses are taken for granted as standard term and generally pose no problem to the contractor.However,the possibility of such clauses harming your business interest can not be ruled out.
Feb 17, 2017 9:40 AM
Replying to Michael Ziyadeh
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Put a cap on liability.
Make indemnity mutual.
Limitation on liability should cover any indemnity
Your suggestion is most welcome but doesn't find acceptance by most of the client .
There is an element of uncertainty in such a clause and thus leads to risk. In evaluation of such risk, you must analyse, in pricing stage:
1. History of Claims in similar cases in past
2. Business practices of the area in reaching a consensus in case of disputes over indemnity cases.
3. Parameters used in determining default leading to cause indemnity, are they fairly established standards

Based on above factor determine price of your contract, by giving due allowance for probable claim arising. This is first level of defence.

Secondly, during the execution make sure that quality parameters of delivery are met and acknowledged and duly accepted by the customer and documented.

On each milestone, reassess the risk of indemnity payments for any reason of delay or nor conforming product, and take and informed decision to use the management contingency reserve to accomplish extra resources requirements.

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