Implications of an Indemnification Clause in Construction Contracts

Risk is an inherent part of any construction project, and the contract language is a vehicle for contracting parties to allocate this risk and properly manage it. Among the various contractual clauses used to address risk, the indemnification clause, under which one party agrees to indemnify and hold harmless the other party, has tremendous importance in shifting substantial risk and potential costs from one party to another. Thus, the objectives of this article are to explore the complexity of an indemnification clause, identify its risks and pitfalls, educate the contracting parties of the potential implications of this clause, and provide drafting suggestions for a better allocation of risks associated with indemnification.