High “Litigation Impact”​ Term Number 5 – Indemnification

The all-important indemnification clause. It is one of the most negotiated provisions in a contract given its primary purpose is to impact litigation by shifting liability.

For subcontracting parties, indemnification is particularly relevant because often primes and subs are working together on government sites. If a subcontractor were to negligently injure a prime contractor’s employee or government personnel and the prime contractor incurred liability to that injured person, then the prime contractor would want to be indemnified by subcontractor.

Also of significance for government contract primes and subs is liability to the government for regulatory non-compliance. The False Claims Act (“FCA”) is the best example of this scenario. A prime contractor should always include in its indemnification provisions the ability to recover against the subcontractor should the subcontractor’s non-conformance cause the prime to incur losses for FCA liability.

The Take-Away – Prime contractors face significant liability in the government contracts marketplace; yet, much of their ability to perform requires subcontracting partners, who, even inadvertently, can cause primes to run afoul of the extensive and stringent compliance requirements of procurement contracting. To help mitigate this risk, primes will want to consider including language in their indemnification clauses to cover losses related to failure to comply with prime contract terms and conditions when such losses are caused by their subcontractors.