On April 14, 2015, Colorado State Legislature unanimously passed House Bill HB15-1197, which was supported by the American Institute of Architects (AIA), Colorado Municipal League (CML) and many other organizations. An overview of the bill by the Colorado Municipal League reads:
Limits public entities from requiring certain contractors from duty to defend obligations in construction contracts. Applies to architectural, engineering, surveying, or other design services. Allows the public entity to recover any costs of defense attributable to the contractor after the liability or fault has been determined by adjudication, alternative dispute resolution, or mutual agreement. Effective Sept. 1, 2015.
What does this mean for you as an owner, as a consultant? Let’s start with “indemnification” first. If you are like me one of the first things you do when you receive an RFP on a public project is review two items:
- Does the RFP include language stating that if you have changes to the agreement you must notify the potential client at the time of submission? We refer to this clause as the “kiss of death” as many clients simply don’t want to change their agreement as it takes time or simply they don’t want to get their legal counsel involved.
- The indemnification clause itself. Is it fair, meaning, can your insurance provider cover what is written, is it even legal?
I am not a lawyer or insurance provider and urge you to engage your legal counsel and insurance provider as you move to signing an agreement
Indemnification. In simplest terms, it can be defined as an obligation by one party to make another financially whole for a loss that the other party has incurred. The new, modified legislation moves to make agreements more fair and balanced. By changing the wording and thus meaning to say (generally speaking) that you no longer have to prove you are not at fault “after the liability or fault has been determined”; so, you don’t have to pay to defend yourself from others negligence. It also states you are only responsible for your portion of the negligence.
A couple key items to watch out for related to indemnification:
- “Consultant shall defend, release, indemnify and hold harmless…”. You don’t want to defend the potential client, as the contractual duty to defend is broader than the duty to indemnify.
- Some indemnification clauses get very specific stating “the consultant shall indemnify and hold the Town, its officers, employees, insurers, pets, friends and family.” These can get egregious, and although usually not a deal killer, should be tailored to be reasonable. Sometimes the more specific, the more limiting for the potential client. You can always claim that the list was so detailed that you didn’t agree to indemnify the mayor’s cousin when an issue arises.
- Some indemnification clauses get very specific stating you will hold harmless for “bodily injury, personal injury, sickness, disease, death, property loss….” Again, the specific items are less critical and may even be to your advantage.
- Try to make sure you have something stating that your indemnification extends to only damage caused by the consultant’s negligent act, error or omission, or any other person the consultant directly employed or for whose acts they may be liable.
Here is a sampling of the new provisions you should expect to see in public agency agreements.
- This indemnity provision is to be interpreted to require the Consultant to “indemnify and hold the Client harmless only to the extent and for an amount represented by the degree or percentage of negligence or other fault attributable to the Consultant…..” The new legislation states you can only be found at fault for your percentage of the issue at hand.
- “The extent of the Consultant’s obligation to indemnify and hold the Client harmless under this Section shall be determined only after the Consultant’s liability or fault has been determined by this agreement”. The new legislation requires the Client to prove the consultant’s negligence.
Hopefully you won’t ever have to use this clause, or any clause, of your agreement, but when negotiating a fair and balanced approach make sure you use the new laws to your advantage.
Signed copy of House Bill HB15-1197 is in the following document on page 17.
~Paul Wember, Owner’s Representative