Risk allocation is an important consideration in construction. Unfortunately, many people overlook its value. Indemnification clauses can protect construction contractors from many types of risks.
The right clause addresses potential liabilities. This helps protect stakeholders and keeps projects on track in the event of complications.
Indemnification basics
At its core, indemnification simply defines the placement of risk in a contract. Indemnification addresses each party’s responsibility for certain claims, losses or damages. The clause specifically allocates the financial burden if unforeseen circumstances occur.
Types of indemnification
Indemnification clauses come in various forms. Each type has its own purpose. With Full Indemnity, the indemnifying party takes full responsibility for all project losses. Limited Indemnity allows the parties to share responsibility. It includes limitations on specific circumstances or liability amounts. Each party indemnifies the other in comparative indemnity cases. This protects both parties from exposure due to someone else’s actions.
Key considerations
When crafting construction contracts, define the scope of indemnification. Clear contracts prevent disputes down the line. Require adequate insurance coverage for everyone involved as well. Factor any indemnification obligations into those insurance requirements as well. More than $2 trillion worth of new construction happens each year. This high-value industry needs comprehensive coverage.
Everyone in the construction industry should understand the nuances of indemnification. Negotiating these clauses carefully protects all parties from excessive risk exposure. When you identify the risks, you have a collaborative, secure project environment. A well-crafted indemnification clause protects your project. It also protects your company and those of your partners.