How to Transfer Risk in a Construction Contract Part 1
As Tallahassee construction lawyers, we know that no contract is perfect; however, we can’t stress enough the importance of contract review. Reviewing the contract is a vital step in the risk allocation process because it provides parties with the opportunity to identify errors and inaccuracies, and reveals when risks have not been allocated properly. In this article, we’d like to share four types of agreements that can be used to transfer risk before you begin your next construction project.
Hold Harmless Agreement
A hold harmless agreement releases one party from liabilities due to the act of another party. The agreement is typically provided by subcontractors to a contractor or other construction professionals to insure against all work being executed by the subcontractor. The language of this provision is vital because it provides protection for the intended parties. It minimizes the chance of litigation and it provides subcontractors with the opportunity to submit a claim of indemnification if the subcontractor or one of the subcontractor’s employees are injured on the job.
Indemnify means to hold harmless and defend. The Indemnification clause is like an insurance policy because it protects one party while allowing others to bear the risk of losses. Some examples of the types of losses subject to the agreement may include breach of contract, claims for loss, property infringement, legal costs, and liability for negligence. As with any agreement, language is key. Parties must ensure that the type of losses, legal fees, scope, and intent of the indemnification is identified for valid coverage.
In Part 2 of our article, we’ll provide two more ways to transfer risks in a construction contract.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.