Indemnity Clause in Project Contracts

Project Taking Organization’s obligation to indemnify, if any, is limited to damages caused by Project Taking Organization. Project Taking Organization should not assume responsibility for the negligence or other fault of others including third parties.

1.           Although not specifically prohibited by the Contracting Policy, it is preferable to restrict the indemnity obligation to the extent of Project Taking Organization’s negligence, rather than just excluding the obligation in the case of customer negligence. The former attempts to exclude possible liability for third party claims, while the latter does not. It is acceptable to include liability for Project Taking Organization’s sub-contractors, agents and each of their employees, since Project Taking Organization is generally obligated to account for the actions of its selected subcontractors. Project Taking Organization should not agree to accept responsibility in the case of customer directed subcontractors. 

Customer language, which requires indemnification for all injury or any nature or kind,   directly or indirectly connected to performance, is very broad and should not be accepted.

2.           Look for and eliminate indemnity obligations that appear in other parts of the contract (patent indemnity provision excepted). Such clauses may appear under the headings “Indemnity,” “Liability,” “Product Liability,” “Obligations,” or other such headings. Confusion and interpretation disputes may arise where multiple indemnity obligations appear in different parts of the contract. 

3.           Eliminate any additional clauses where the customer seeks reimbursement for costs it incurs as a result of Project Taking Organization’s performance, particularly in cases where liquidated damages apply. As discussed below liquidated damages should be the sole and exclusive remedy for delay. Such cost reimbursement or damages for delay provisions operate as indemnity provisions in disguise.

4.           Other types of indemnities: There are two other types of indemnities that are not good to hold, with the contracting policy.

a)           Intermediate Indemnity: this indemnity states that Project Taking Organization will indemnify the customer from all claims or damage except to the extent caused by the sole negligence of the customer. This form is unacceptable because Project Taking Organization will be liable for the claim if it is determined that the customer is not 100% negligent. It is very difficult to prove sole negligence and in reality, this makes Project Taking Organization liable for the negligence of others. Where a contract includes indemnity for sole negligence refer to the applicable State guidelines for permissible indemnity obligations in construction contracts.

b)           Broad Form Indemnity: this indemnity states that Project Taking Organization will indemnify the customer from any and all claims, even if caused by the active or passive negligence of the customer or third parties. This indemnity is contrary to the contracting policy and must not be accepted.

c)           Examples: Let’s take the example of a personal injury claim. The injured party sues Project Taking Organization and our Customer.

A court determines that:    Customer is 50% at fault and Project Taking Organization is 50% at fault

WHO PAYS and HOW MUCH? - look at each of the indemnity clause.

Limited Form - Project Taking Organization pays 50%; Customer pays 50%.

Intermediate Form - Project Taking Organization pays 100% since the customer was not solely at fault.

*Note that if the Customer was 99% at fault and we had an Intermediate Indemnity clause, Project Taking Organization would still pay 100%.

Broad Form - Project Taking Organization pays 100% regardless of fault.

*Note that if the Customer was 100% at fault, Project Taking Organization would still pay 100%.

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