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  • 1.  Eliminating Indemnification Clauses

    Posted 01-07-2019 12:02 PM
    Edited by Tirza Austin 01-07-2019 12:01 PM
    In certain jurisdictions, such as California, courts have found that an engineer, who has agreed to defend its client or pay its client's attorney's fees, will be required to pay for its client's attorney's fees and expenses upon any allegations against the client that in any way implicate the engineer's work without any finding of negligence by the engineer.  The courts in these jurisdictions have imposed such an obligation on the engineer even when the duty to defend, indemnify, and hold harmless is expressly limited to claims arising from the engineer's negligence.  While it is typically best to avoid any indemnification clauses that run in the client's favor or to exclude any agreement to defend or pay the attorney's fees and costs of another party, business realities can make such avoidance impractical or impossible.  What is the current tenor regarding these types of indemnification clauses?  Have you found that clients are willing to eliminate indemnification clauses?  What about excluding defense obligations or obligations to pay the client's attorney's fees?

    Sarah Johnson A.M.ASCE
    Karbal, Cohen, Economou, Silk & Dunne, LLC
    Chicago IL

  • 2.  RE: Eliminating Indemnification Clauses

    Posted 01-08-2019 10:41 AM
    Edited by Tirza Austin 01-08-2019 10:40 AM
    I have found that non-governmental clients are flexible on that clause.  Most of my contracts do not have an indemnification clause as part of the contract.  The indemnification clause makes the relationship between client and engineer adversarial, and as engineers, we cannot afford to have that kind of poison in our relationships with our clients.  I have found that governmental clients force you to use their contract, and because of that, and their requirement for us to insure everyone and their brother on the construction site, my fees are adjusted upward with governmental agencies. 

    The other clause I dislike that governmental agencies make us use is the "time and materials not to exceed."  I add a significant amount to the estimate of fees when they make us use this clause because they make the engineering company assume all the risk for a poorly defined project.  I was given a project that was originally written in 1996 that included the time and materials not to exceed clause.  A newly elected member of congress decided that they did not like the project, even though when they were a city councilmember they forced the City to do it, and as of 2015, the job was still being done by my previous engineering company.  They were about $3 million over budget on a $500,000 initial engineering job because of a "Time and Material not to Exceed" clause.  They were paid for all the extra study work, but the actual base engineering work that the studies caused was not paid.  It didn't help that the hourly wages for the basic engineering were 1996 levels, and were paying EITs $18/hour, and project principals $43/hour.

    Dwayne Culp, Ph.D., P.E., P.Eng, M.ASCE
    Culp Engineering, LLC
    Rosenberg TX

  • 3.  RE: Eliminating Indemnification Clauses

    Posted 01-10-2019 10:12 AM
    Edited by Tirza Austin 01-10-2019 10:12 AM
    1. What I see is a general acceptance of indemnification agreements that match up against standard PL forms as the starting place for most projects.  However, bigger commercial projects tend to push the indemnification obligations in favor of the owner/contractor/design-builder-the golden rule at work.  Higher education projects (including public entities) are actually some of the most onerous- I think we can credit this to the volume of construction related litigation in this sector.  Federal and state level projects probably have the most designer favorable clauses- with the sole exception of, as always, long-term clients, some of which are still doing letter agreements and hand shakes. 
    2. While I occasionally see contracts without indemnification, it is far and away the exception.  But if you can get it, you go!
    3. As for excluding defense obligations, we are pretty successful at this.  However, I would not turn an opportunity away based solely on a defense obligation in an indemnification clause.  It certainly is a factor, but every project has uninsured risk, and that just becomes another one you have to factor into the risk-reward analysis to determine if the opportunity makes sense.

    Zachary Jones J.D., A.M.ASCE
    Stites and Harbison PLLC
    Nashville TN
    (404) 550-6175