Project work in the construction industry is typically underpinned by a chain of contracts between clients, contractors and subcontractors. In the circumstance where something goes wrong on the job or in your contractual relationship, your lawyer will try to provide you with the best available options for action. However, those options will be limited or defined by the contract that was signed at the start of the deal. Thus, it is easier and more cost-effective for parties to allocate time and resources to properly drafting and negotiating the contract at the outset of the project to help avoid costly litigation should a dispute arise down the line.
Indemnity (against something) is protection against loss or damage, especially in the form of a promise to pay for any loss or damage that occurs. Indemnity clauses are prevalent in construction or infrastructure contracts because they give greater protection to the indemnified party to a contract than the ordinary law of negligence. One key difference between reliance on an indemnity clause and reliance on the law of negligence lies in the requirement to prove fault: under the law of negligence in most jurisdictions, one party must prove the other party was at fault in order to recover compensation for loss or damage. However, under an indemnity clause, the indemnifying party must pay for the loss or damage whether or not they were at fault.
There are other specific aspects of indemnity clauses but the main point to understand is that indemnity clauses exist to give the indemnified party greater legal protections than would otherwise be available to them. Typically in a construction indemnity clause, the head contractor indemnifies the principal in their contract, and passes this ‘down the chain’ to their subcontractors.
Your Ally Law member firm commercial law attorneys have seen contracts in all shapes and sizes, with huge variations in the types of clauses incorporated. The impact that a contract has on the parties to it varies significantly; often, your lawyer has to look at both the detail in the wording of specific clauses as well as the contract as a whole and how it all fits together in order to fully understand its legal implications to your business. Visit with your Ally Law member firm to assure that you have negotiated the optimal terms to protect your project and your business. For more information about our services in this area, contact us at firstname.lastname@example.org.