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Contracts & Legal

Indemnification

In Plain English

A promise in a contract to cover another party's losses if something goes wrong.

Definition

Indemnification is a contractual obligation by one party to compensate another for losses, liabilities, or damages arising from specified events. In construction contracts, contractors typically agree to indemnify owners and architects for claims arising from their work. The scope of indemnification is heavily negotiated and varies widely between contracts.

Why It Matters in Bidding

Indemnification language directly affects a contractor's risk exposure and the cost of carrying that risk, so estimators and project executives review it before signing because broad-form clauses can shift liability for the owner's own negligence onto the contractor. The negotiated scope influences insurance requirements and ultimately the contingency a prudent bidder builds into the price.

Example

Before submitting a bid on a hospital addition, the GC's risk manager flags a broad-form indemnity clause and negotiates it down to comparative-fault language to keep the firm's insurance and bonding costs in line.

Related Terms

Hold Harmless ClauseCertificate of InsuranceExculpatory ClauseSubcontract

Frequently Asked Questions

They generally fall into three tiers: broad form, where one party covers all losses including the indemnitee's sole negligence; intermediate form, covering losses except the indemnitee's sole negligence; and limited or comparative form, where each party is responsible only for its own share of fault. Many states restrict broad-form clauses by statute.
A clause that shifts disproportionate liability raises the contractor's risk profile, which can increase insurance and bonding costs and prompt a larger contingency in the bid. Estimators who spot onerous indemnity terms during the bid period often qualify their proposal or price the added exposure rather than absorb it silently.
Many contractors avoid it where possible because it can require them to cover losses caused entirely by the owner or designer, and some insurers exclude that liability from coverage, leaving an uninsured gap. Where state anti-indemnity statutes apply, broad-form provisions may be unenforceable, but legal review before signing is prudent.

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