Managing Construction Risk Through Contracts, Insurance And Early ADR

Commercial and residential construction projects expose property owners and general contractors to significant risks arising from personal injury, property damage and construction defect claims. Contract documents can help allocate those risks to the responsible parties, while insurance can protect against losses that cannot be avoided or fully transferred. Common risk management tools include contractual indemnity, prevailing-party attorneys’ fees provisions, insurance requirements and early alternative dispute resolution (ADR) clauses.

Contractual Indemnity

Contractual indemnity is one of the most common means to transfer risk from one party to another. A common indemnity provision in construction agreements provides that one party (the indemnitor) agrees to defend and/or indemnify another party (the indemnitee) for attorneys' fees, damages or other losses arising out of the indemnitor’s work or negligent conduct. Such indemnity provisions are allowed in almost every state and can