April, 15 2009
Contract Terms: Indemnification
Posted by Liz Greene
Indemnification, a clause in almost every single contract, is easiest discussed in common terms. When you indemnify your client, you are promising to compensate that client for any loss they may suffer while you’re working on that contract. In other words, you are protecting them in case of a law suit.
When you’re looking through a proposed contract, do you consider your ability to negotiate when it comes to indemnity? Most contracts are written in the client’s favor, and therefore contain very broad indemnification covenants (more so the larger the client company). As a consultant, you are responsible for what you sign, so be sure that you negotiate those terms to be as narrow as will be allowed. The client wants to ensure that they are covered at the highest level for the most possible things that can go wrong; you want to be sure you’re not being held accountable for something you aren’t directly responsible for.
A broad indemnification clause can leave you in hot water: Let’s say you’re a sole proprietor and something happens on your contract that causes an indemnity to be invoked naming you as the indemnitor. All of a sudden, your personal assets are at risk. You could be liable for paying thousands or millions of dollars, and without the proper insurances, you could lose it all…
So what can you do? First, make sure that your indemnification clauses are narrowly defined during contract negotiations. We’ll go over how to do this in our next webinar. Second, make sure you have the right business insurances to cover you in case you ever need to pay reparations resulting from an indemnity. Finally, consider if you’re willing to risk it all as a sole proprietor. Before entering into the risk of contracting, consider other options like self-incorporation, or our Portable Employer of Record service, which covers you with a strong umbrella of business insurance.
Dave Putt, Vice President of Client Services (and contract guru) will be covering indemnification and more at our upcoming webinar, Contracts 101: Negotiating Agreements in Your Favor.
[The author is not an attorney, and this blog does not provide legal advice. It’s always a great idea to consult a legal professional before signing any contract. Good luck!]
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