Stop Signing Away Your Subcontractor Profits
Date Posted: September 27, 2019
Posted In: Ideas,
From Procore Jobsite: Few people enjoy reading contracts. Their never-ending sentences cause your eyes to glaze over and your mind to go numb. Performance bond and insurance language are equally boring. But, by not taking the time to carefully review and understand these documents, subcontractors are taking on more risk than they can handle. And in the process, they’re giving away profits to pay legal fees.
The Pitfalls of Indemnification
Indemnification, or hold harmless clauses, are a standard way of apportioning risk, so the parties that cause damages are the ones who pay. Owners continue to push more risk down the chain, but it’s not done equitably because of language appearing within these indemnification clauses, according to Timothy J. Woolford of Woolford Law, P.C.
Watch out for these phrases:
- Arising out of the work – you could be liable for more than your fair share
- Injury or damage caused solely by the indemnity’s negligence – you will pay for things that aren’t your fault
- Contractor agrees to defend, indemnify and hold harmless – you will pay regardless of how much you are at fault
Subcontractors will incorrectly assume that when their contract doesn’t contain an indemnification clause, they don’t have any obligations. Watch for “flow down” and “incorporation by reference” clauses, and language assigning to you “all obligations and responsibilities” of others. Woolford recommends negotiating changes to these troublesome clauses to bring them in line with standard American Institute of Architects contract language. You should also be wary of relying on your commercial general liability policy to cover you when one of these contract clauses is triggered.
Contractual Liability Sinkholes
General liability policies include contractual liability insurance. This insurance covers you for liabilities arising from the actions of others, and it comes into play when there are indemnity or hold harmless claims. But, because legislators are currently hostile to indemnity clauses, and certain endorsements to insurance policies remove coverage for indemnity clauses, owners are using the ‘additional insured’ clause so they are added to the general liability policy of the general contractor, and the policies of all subcontractors.