Selçuk Zeybek

Notes · Risk & liability · FIDIC 17.1

The promise that outlives the contract

A stranger is injured on the works, bound by no contract with anyone on the project — so they sue the party at the top of the chain, who never touched the work. The indemnity is the mechanism that carries that liability home to whoever caused it: defended as it runs, cut back by the indemnified party's own fault, walking straight through the consequential-loss waiver, and still standing years after final payment.

IndemnitiesFIDIC 17.1 — the promise that outlives the contractEMPLOYERCONTRACTORSUBCONTRACTORMain ContractSubcontractPRIVITY OF CONTRACTA contract binds a chain: Employer, Contractor, Subcontractor. Each owes the next — and nobody outside the ring.
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An indemnity is not a claim for damages

They get read as the same thing, and they are not. A claim for damages is a secondary obligation: it arises because a promise was broken, and you must prove the breach, the causation, the remoteness, and your loss. An indemnity is a primary obligation — a promise to bear a defined loss if it happens at all. You are not proving that anyone broke anything. You are pointing at the trigger and saying: that one; you agreed to carry it.

The practical difference shows up where construction risk actually bites — in claims that come from outside the contract. A villager injured on an access road. A utility owner whose cable you cut. A neighbouring landowner with a cracked wall. None of them has a contract with anyone in the chain, so none of them is bound by it: they sue whoever looks solvent and responsible, which is usually the party at the top, who never touched the work. The indemnity is the mechanism that carries that liability back down the chain to whoever’s act caused it.

Where FIDIC puts them

In the 1999 forms it is Sub-Clause 17.1, and it runs both ways. The Contractor indemnifies the Employer against claims for bodily injury and death arising out of the execution of the Works, and against damage to third-party property, except to the extent attributable to the Employer. The Employer indemnifies back — for its own negligence, and for the matters that are the Employer’s risks or are excluded from the insurance cover. The 2017 forms split the same ground across 17.1 and 17.2 and tighten the drafting, but the architecture is unchanged: mutual, fault-referenced, and expressly proportionate.

Down the chain, the subcontract does two jobs at once. It repeats that general indemnity — and it adds the one FIDIC has no reason to include: a main-contract indemnity, under which the subcontractor covers whatever the contractor becomes liable for under the main contractbecause of the subcontractor’s act or default. That is what makes a chain genuinely back-to-back. Without it, the contractor passes down the obligations but keeps the consequences.

The five things that decide what an indemnity is actually worth

Every indemnity clause looks similar at a glance. What separates a real one from decoration is entirely in the detail — and it is the detail that gets negotiated away when nobody is watching.

  • The trigger, and how wide it is. “Arising out of or in connection withthe works” is a far larger net than “caused by the subcontractor’s negligence”. Watch, too, who is covered: an indemnity that names only the contractor leaves the employer, the engineer and their people outside it — which is precisely who the third party will sue.
  • The duty to defend, and who funds it as it runs. This is the limb that gets forgotten, and it is often worth more than the indemnity itself. A clause that says the indemnifying party must take over conduct of the defence within a fixed period, appoint counsel, and fund the legal costs as they are incurred, is a different instrument from one that reimburses you after final judgment — three years and several million in fees later. Tie it to a short notice period both ways, and to a duty to cooperate and to mitigate.
  • Proportionality — the words “to the extent”.A well-drafted indemnity is reduced in proportion to the indemnified party’s own contribution to the loss. Its absence cuts both ways: an unqualified indemnity can make you carry a loss you helped cause, and in some jurisdictions an indemnity against your own negligence is unenforceable anyway.
  • How it sits against the cap and the consequential-loss waiver. Most contracts waive indirect and consequential loss mutually — and then carve indemnity obligations out of the waiver. That carve-out is doing enormous work: it is what lets an indemnity reach losses a damages claim could never touch. Read it alongside the liability cap and its exclusions. Death and personal injury, fraud, wilful misconduct, IP infringement, breach of confidence and tax are commonly uncapped, and an indemnity that survives the cap is an unlimited exposure however friendly the headline number looks.
  • Payment mechanics, and survival. Indemnity sums should be payable gross — free of set-off or counterclaim, and grossed up for any withholding — or the money arrives short exactly when it is needed. And the clause must be expressed to survive termination, expiry and final payment. A third-party claim can surface years after demobilisation; an indemnity that dies with the final payment certificate protects nobody at the moment it is finally needed.

A worked example

The cable nobody knew was live

An excavator on a railway earthworks package strikes an uncharted fibre-optic trunk. The cable owner is a stranger to every contract on the project, so it sues the employer — for the repair, and for the revenue lost while the network was down. The employer turns to the contractor under Sub-Clause 17.1; the contractor turns to the subcontractor under the main-contract indemnity. Three things now decide the outcome, and none of them is about who dug the hole. Does the consequential-loss waiver block the revenue element — or is it carved out because this is an indemnity, and because the loss forms part of a third-party claim? Who is funding the defence while the network operator’s experts run up costs? And was the cable uncharted because the employer’s own survey dataomitted it — in which case “to the extent” cuts the indemnity back by the employer’s share. The excavator driver’s conduct is the least interesting fact in the file.

A WORKED EXAMPLEThe cable nobody knew was liveuncharted — on nobody's drawingthe least interesting fact in the fileAs pleadedrepair + revenue lost while the network was downrepairlost revenue — the contested head1Does the waiver bite?No — indemnities are carved out of itit stays2Who funds the defence?The indemnifier, as the costs accruedefence costs3Whose survey missed it?The Employer's — so the indemnity is cut backthe Employer's shareNet — more than the repair, less than the claim, and a defence somebody had to fund throughout.Forty seconds of digging — and an uncharted fibre trunk is severed.

Reading it from the other side

If you are the one giving the indemnity, the same five points read as a checklist of what to resist: an open-ended trigger untethered from fault; an indemnity in favour of parties whose conduct you cannot control; no proportional reduction; a carve-out from the cap so broad that the cap is decorative; and a defence obligation you must fund without any right to control the settlement. That last one deserves its own line — never agree to pay for a defence that someone else is free to settle on any terms they like.

And whichever side you sit on, check the indemnity against the insurancesin the same reading. An indemnity is only ever as good as the balance sheet or the policy standing behind it. Where the works are insured under the contractor’s all-risk and third-party policies, the subcontractor should be named as co-insured with the insurer waiving subrogation — otherwise the insurer pays the claim and then sues the subcontractor in the contractor’s name, and the risk you carefully allocated arrives back through the side door.

Indemnities are the quietest clauses in the contract and the last ones to be negotiated, usually late at night, by people who want to sign. They are also the only ones still working years after the job is done — when the site has gone, the retention is released, and a stranger with no contract and a good lawyer sends a letter.

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