Clause 17: Care of the Works and Indemnities

Written by George Rosenberg 1

This Clause has been substantially re- Responsibility and Liability for the Care of
worked. The content of the former Clause the Works
17.6 [Limitation of Liability] has been
removed to Clause 1.15. The first two Sub-Clauses of Clause 17 deal
respectively with Responsibility for and Liability for
The Clause 17 Care of the Works obligations under Care of the Works.
the 1999 edition were useful as a statement of
allocation of responsibility, but of limited The term “care of the Works” is nowhere defined,
significance in that many of the obligations but its meaning should be able to be understood
imposed on the Contractor in respect of its from the two sub-clauses. Under 17.1, the
responsibility for care of the Works and the liability responsibility entails rectifying any loss or damage
once responsibility had passed to the Employer which occurs during the period for which the
were also capable of being regulated under Sub- Contractor is responsible. Following this period,
Clause 7.6 [Remedial Work] (prior to completion) the Contractor is liable for any loss or damage
and under Clause 11 [Defects Liability] (after caused by it to the Works – either in this period or
completion). Despite considerable changes this as a result of something which occurred during the
position remains. period during which the Contractor was
responsible.
Where, after completion, the Contractor is
reluctant to meet his responsibilities, the Thus “care of the Works” seems to entail repair
temptation for the Engineer to use his Clause 11 during the period of responsibility (which itself
powers is now increased because, while action by involves taking the necessary steps to avoid the
the Engineer under Clause 17 (formerly on the basis need for such repair) and liability for loss or
of a “request”) now has to be through a Variation, a damage during the period subsequent.
similar result can be achieved by an instruction
under Clause 11. As can be seen from the The period during which the Contractor has the
commentary on Clause 13, and also below, the use responsibility for the care of the works generally
of Variations is fraught with potential problems. expires at the Date of Completion or earlier
termination, although it is extended for the care of
The Contractor’s Care of the Works responsibility is any work which is outstanding on the date of
substantially reduced compared with that under the completion until it is completed. This would cover
1999 edition because it does not now include any rectification of defects and snagging lists.
loss or damage caused by the Employer or
Engineer. The concept of Date of Completion is clear in
respect of Sections or the Works as a whole thanks
The Contractor and Employer indemnities relating to the definition of Date of Completion in Sub-
to personal injury and property claims, which were Clause 1.1.24. It means that the date will either be
formerly applicable in respect of all relevant claims, that stated in the TOC, a deemed completion date
now only apply to third party claims. under Sub-Clause 10.1 or a deemed taking over date
under Sub-Clause 10.2 and 10.3. The last sentence
of the first paragraph of Sub-Clause 17.1 passes the
responsibility to the Employer if a TOC for a

1
George Rosenberg is a Consultant at Corbett & Co. International Construction Lawyers Ltd. He can be contacted at george.rosenberg@corbett.co.uk

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Section or a Part is issued or deemed to be issued. damage, once it occurs on its watch. The Employer
In respect of Parts, Sub-Clause 10.2 does not will probably be ill-equipped for this task
provide for the deemed issue of a TOC but does (especially if only a Section or Part has been taken
provide for a deemed taking over and a passing of over). The consequences will be considered below
responsibility to the Employer. It would have been in relation to the Employer’s remedies set out at the
helpful if Sub-Clause 17.1 had cross-referred to end of Sub-Clause 17.2
Sub-Clause 10.2.
Liability
However, Sub-Clause 10.3 deals with interference
with tests on completion and provides that, where Sub-Clauses 17.1 and 17.2 draw a boundary between
the Contractor is delayed by such interference, a period during which the Contractor is responsible
then, subject to the Contractor having given notice, and when it becomes merely liable. This is a
the Employer shall be deemed to have taken over concept many lawyers will find difficult to grasp,
the Works or a Section when the Works or Section because responsibility usually implies liability.
would otherwise have been completed. There is However, it is clear that this is the draftsman’s
thus a deemed taking-over but no deemed issue of a intention. The distinction seems to lie in the scope
TOC. It is clear that such a deemed taking over was of the responsibility laid out in Sub-Clause 17.1 by
not intended under Sub-Clause 10.3 to be the comparison with the scope of liability laid out in
equivalent of a deemed TOC as Sub-Clause 10.3(c) Sub-Clause 17.2. Under 17.1 the responsibility
requires the Engineer to issue a TOC. Thus it is entails repairing loss or damage, whereas under
possible that there will be no TOC or deemed TOC Sub-Clause 17.2 there is no strict definition. In
under Sub-Clause 10.3. Unlike Sub-clause 10.2 general legal terms, liability might mean an
there is no express provision for passing of obligation to repair but it would also mean paying
responsibility to the Employer. It is therefore damages consequent.
possible that the passing of responsibility will be
delayed or (in the event that the Engineer does not In making the distinction between responsibility
issue a TOC) may not occur at all. and liability, Sub-Clauses 17.1 and 17.2 also largely
absolve the Contractor from liability under Sub-
It should be noted that the third sentence of the Clause 17.1 (except to the extent that responsibility
first paragraph passes responsibility on the date of for repair can be regarded as a liability).
issue of the TOC – sometimes a date later than the
Date of Completion, so there appears to be an Quite why it this is necessary to set out a basis of
internal inconsistency within this first paragraph. liability in Clause 17, is not clear. The period of
Contractor liability coincides with the Defects
Sub-Clause 17.1 thus has the effect (subject to the Notification Period which has a comprehensive
above issues) of defining the period of the code for Contractor liability.
Contractor’s responsibility and the start of the
Employer’s responsibility. Sub-Clause 17.2 opens with a paragraph which
imposes liability on the Contractor where it causes
Employer’s Responsibility damage after the issue of a TOC, including where
the loss or damage resulted from something which
Once the Contractor ceases to be responsible for occurred before the TOC. What it specifically does
the care of the Works, responsibility shifts to the not do is impose liability for loss or damage which
Employer. The Sub-Clause does not explain the occurred before the TOC.
consequences of this, but by analogy with the
consequences of responsibility for the Contractor, it It should be noted that the period of liability begins
seems as though it becomes the Employer’s with the issue of TOC. According to the definition
responsibility to protect against and repair loss or of TOC in Sub-Clause 1.1.81 a TOC includes a

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deemed TOC so there may, as outlined above, be accordance with Sub-Clause 1.15 [Limitation of
situations where the liability is delayed or does not Liability] there is no liability “for loss of use of any
come into effect. However, more importantly, Works, loss of profit, loss of any contract or any
there may be a gap between passing of other indirect or consequential loss”.
responsibility (Date of Completion) and
commencement of liability (TOC). This is because Excluded Events
a TOC is normally dated later than the date of
completion included in it. During this period the Sub-Clause 17.2 excludes the Contractor from
Employer will have responsibility, but the liability caused by a list of events. Several of these
Contractor will have neither responsibility, nor, at are included by reference to Sub-Clause 18.1
least under Sub-Clause 17.2, liability2. [Exceptional Events].

Assuming that responsibility is different from One of the 1999 events has been removed from the
liability, the Contractor will not benefit from the list (pressure waves caused by aircraft or other
cap on liability set out in Sub-Clause 1.15, should aerial devices travelling at supersonic speeds) and
the cost of repairs during the period of the following have been added:
responsibility, exceed the limits on liability set out
(a) Interference with any right of way, light, air
therein.
water or other easement which is the
Consequences of Liability unavoidable result of the execution of the
Works in accordance with the Contract.
If the Contractor is liable, as opposed to
responsible, it is no longer required under Clause (b) Faults in the design which an experienced
17 to remedy the loss or damage. Sub-Clause 17.2 contractor exercising due care would not have
does not say what is to happen. However, since this discovered 3.
situation occurs after the Completion, Clause 11
[Defects after Taking Over] applies. The (c) Rebellion, terrorism, revolution, insurrection
Contractor can be obliged to repair defects or military or usurped power, riot commotion or
damage. Sub-Clause 11.2 provides that the disorder and the encountering of munitions of
Contractor will bear the cost in a limited range of war are no longer limited to events within the
circumstances, all of which can be said to be country.
“caused by the Contractor” but which is certainly
not a comprehensive list of such causes. There may (d) Strike or lockout.
thus be situations where the Contractor has caused
a loss or damage and is thus liable under Sub- (e) Natural Catastrophes such as earthquake,
Clause 17.2, but would not be liable under Sub- tsunami, volcanic activity, hurricane or
Clause 11.2 for this cost. Presumably the remedy typhoon.
for the Employer lies in a claim for damages.
(f) any act or default of the Employer or Engineer
It is thus possible that, after TOC, but not before, and use or occupation by the Employer of any
the Contractor will be liable for damages resulting part of the Permanent Works unless otherwise
from loss or damage caused by it to the Works. specified in the Contract.
Such damages will be rather limited as, in

2 3
An act of negligence on the Contractor’s part would Such faults also give the Contractor the right under Clause 1.9 to a
probably create liability in this period, as does the Defects Variation, time and money. However the test in 1.9 takes account of cost
Notification Period (which begins on Completion) but it is a and time. It is not clear whether the omission of this qualification in
Clause 17.2 is intended to have any effect on the way the exemption
pity that there is such a lacuna. applies.

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There must be circumstances in which the sort of the above conclusions. If excluded events in Sub
intereference referred to in (a) is a result of clause 17.2 were not to apply during the
Contractor choice – through its design but it would Contractor’s period of responsibility there would be
seem that once the design (prepared by the an inconsistency.
Contractor) causes interference when carried out,
the risk shifts to the Employer. It is in any case However, if the excluded events are to be applied in
difficult to see how such interference could full to the period of Contractor responsibility, this
influence care of the Works while the Contractor raises questions about the meaning of the words in
remains responsible, nor how it relates to damage Sub-Clause 17.1:
to the Works once responsibility has passed to the
Employer. “If any loss or damage occurs to the Works, Goods
or Contractor’s Documents during the period
This list is expressed to extend to Sub-Clause 17.2 when the Contractor is responsible for their care
liability, but, if the distinction between from any cause whatsoever except as stated in
responsibility and liability is as effective as is Sub-Clause 17.2 [Liability for the Care of the
apparently intended, would not extend to the Works], the Contractor shall rectify the loss or
period when the Contractor is merely responsible. damage at the Contractor’s risk and cost, so that
This would be a departure from the 1999 edition the Works, Goods or Contractor’s Documents (as
philosophy. Perhaps to overcome this problem, the case may be) comply with the Contract.”
Sub-Clause 17.1 makes the responsibility for care
applicable “except as stated in Sub-Clause 17.2.”. If the list of excluded events is taken out and, when
it is noted that the last item in the list is any act or
Although the second paragraph of Sub-Clause 17.2 default of the Employer or Engineer, all that seems
begins with the words “The Contractor shall have to be left of the Contractor’s responsibility is loss or
no liability whatsoever … for loss or damage … damage caused by the Contractor. This happens to
caused by any of the following events ….”, the be the same test as for liability under Sub-Clause
subjection of Sub-Clause 17.1 to 17.2 is presumably 17.2. The words “from any cause whatsoever”
intended to mean that in this sentence “liability” appear to have rather limited meaning. They
includes “responsibility”, whatever is intended certainly apply to acts by the Contractor, by third
elsewhere in Clause 17. This conclusion is bolstered parties unrelated to the contract and to the less
by sub-paragraph 17.2(ii) which is part of a extreme external events, such as normal climatic
provision (discussed below) which provides for a problems, but beyond that the responsibility is
sharing of liability where the loss or damage to the quite limited. The final scope will depend on what
Works is caused by a combination of one of the is meant by the incorporation of some of the
excluded events with “a cause for which the Exceptional Events from Sub-Clause 18.1. But,
Contractor is liable”. One of the remedies where even then, Sub-Clause 7.6, which, in circumstances
this occurs is EoT. Since, after TOC, EoT is where the Contractor does not spontaneously
irrelevant, it seems that here too, “liability” is repair loss or damage, allows the Engineer to
intended to mean the same as “responsibility”. require it to do so at its cost does not impose the
costs on the Contractor when Exceptional Events
The provisions of Sub-Clause 7.6 [Remedial Work] are the cause.
also confirm this position. Sub-Clause 7.6 allows
the Engineer, prior to TOC, to order the repair or Thus, before Completion, the Contractor’s
remedy works in various situations. The responsibility is probably limited to loss or damage
Contractor does not have to bear the cost where caused by itself, by unrelated third parties and by
there is an Exceptional Event, so this sub clause non-exceptional climatic events and, after TOC, its
reflects the same policy as appears to be reflected in liability is limited to events caused by itself.

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Incorporation of Exceptional Events incorporated into Sub-Clause 17.2 by paragraph (e)
is not a comprehensive list of Exceptional Events
Sub-Clause 17.2 includes in the list of excluded but only a series of examples. In Sub-Clause 18.1,
events “any of the events or circumstances listed each one is made subject to conditions 18.1(i) to (iv)
under sub-paragraphs (a) to (f) of Sub-Clause 18.1 – i.e. they must be (i) beyond a Party’s control; ii)
[Exceptional Events].” the Party could not reasonably have provided
against before entering into the Contract; (iii)
The next paragraph of Sub-Clause 17.2, however, having arisen, such Party could not reasonably have
then goes on to state: avoided or overcome; and (iv) is not substantially
attributable to the other Party. It then goes on to
“Subject to Sub-Clause 18.4 [Consequences of an state:
Exceptional Event], if any of the events described
in sub-paragraphs (a) to (f) above occurs and “An Exceptional Event may comprise but is not
results in damage to the Works … the Contractor limited to any of the following events or
shall promptly give a Notice to the Engineer.” circumstances provided that conditions (i) to (iv)
are satisfied.”
Sub-Clause 18.4 deals with the situation where an
Exceptional Event has caused the Contractor delay Thus, one can conclude that the examples (a) to (f)
or Cost. Sub-Clause 18.4 is, itself, subject to the have to be read subject to (i) to (iv). If that is the
requirements of Sub-Clause 18.2 [Notice of an case it is also arguable that 18.1 as a whole was
Exceptional Event] which requires the Contractor intended to be imported (which is the case under
to give notice where it “is or will be prevented from Sub-Clause 7.6).
performing any obligations under the Contract”.
This is a more limited application of Exceptional Thus, there are three possibilities:
Event than is intended by Sub-Clause 17.2. By
definition those events do not prevent the 1. The examples in Sub-Clause 18.1 are included
Contractor performing its obligations. They may on a stand-alone basis.
impose additional cost on it if there are repairs to
be carried out or there is a delay, but that is 2. They are subject to the pre-conditions in 18.1 (i)
different from “prevention”. Perhaps the to (iv)
subjugation of this paragraph of Sub-Clause 17.2 is
only intended to apply in those very limited 3. The whole of 18.1 is in fact incorporated which
circumstances where the Contractor is entirely would allow other Exceptional Events to apply.
prevented from meeting its obligations. It may be
intended to make it plain that in these The third seems unlikely, but possible. It is really
circumstances, there is no alternative required impossible to be sure which of (1) and (2) applies.
under Sub-Clause 17.2 of attempting to do the
impossible. It will also be applicable where the Item 17.2(d) sets a standard for an exception for the
Exceptional Event prevents the Contractor operation of forces of nature which is different from
performing its responsibilities or meeting its that which would be applied if it were an
liabilities for a limited period. Contractors will Exceptional Event. Unforseeability is dated by
need to be very careful to meet their notice reference to the Base Date (28 days before
obligations under Sub-Clause 18.2 and to not to submission of tender) whereas the Exceptional
rely on Sub-Clause 17.2 for all their Cost and time Events test applies at any time up to the entry into
recoveries. the Contract. This test in this sub-clause is also
different from that in Sub-Clause 8.5 should the
When reference is made to Sub-Clause 18.1, it can Contractor apply for an extension of time.
be seen the Exceptional Events list in (a) to (f) and

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Variation Contractor’s responsibility/liability. An instruction
can hardly apportion this. It is not clear how the
The 4th paragraph of Sub-Clause 17.2 provides that Engineer is to cope with this.
if one of the excluded events has, in the
Contractor’s view, been the cause of damage to the It would have been better if either the Contractor or
works the Contractor may give a notice to the the Employer could have given the Notice or if the
Engineer who may then instruct what is to be done. Engineer was given an entitlement to issue an
This will then be treated as a Variation. instruction with the cost and time consequences to
be sorted out later. This is the position under Sub-
This has the odd result that the Contractor will Clause 7.6 which overlaps with Sub-Clauses 17.1
have a right to object for one or more of the reasons and 17.2 in that there may be need for repair during
set out in Sub-Clause 13.1. The first of these is that the period of responsibility. There will be
“the varied work was Unforeseeable having circumstances under which the Engineer prefers to
regard to the scope and nature of the Works make use of his/her powers under Sub-Clause 7.6
described in the Employer’s requirements.” Given (although it should be noted that the valuation
that the event will have been one of the excluded method under Sub-Clause 7.6 may be less
risks, this will often be the case. favourable to the Employer than that under Sub-
Clause 13.3.1 in respect of a Variation). It is also
This provision only applies in the case of damage – the case under Sub-Clause 11.1 [Completion of
not loss – in contrast to all other references in the Outstanding Work and Remedying Defects] where
two Sub-Clauses. It is easy to envisage a loss the Contractor’s obligation is triggered by a Notice.
situation. For example, material stored on site may
be stolen. The Contractor’s computer server may Where responsibility has shifted to the Employer
be damaged, leading to loss of important data. (especially where a Section or Part has been taken
There seems to be no remedy in this situation. over), the Employer may be ill-equipped to repair
any loss or damage not covered by the Contractor’s
The Contractor may not wish to give such a Notice. liability and may wish to rely on its right to vary
If a TOC has been issued and the damage is not under Sub-Clause 13.1 (which applies at any time
caused by the Contractor it will have neither up to the issue of the TOC for the Works as a whole
responsibility or liability. Even before that, the and will thus apply after a Section or Part is
effect of the excepted events is to exclude all complete) or its rights under Clause 11 [Defects
responsibility or liability, so it will be entitled to sit after Taking Over]. There may be circumstances
on its hands and do nothing. If it sees a financial where it prefers to use the Sub-Clause 13.1 power
advantage in doing nothing it will be entitled to act directly rather than relying on the power in Sub-
accordingly. Sub-Clause 8.5(c) already entitles the Clause 17.2.
Contractor to EoT for adverse climatic conditions.
Sub-clause 8.5(e) already entitles the Contractor to Contrast with the 1999 Edition
an extension of time where the delay is caused by
the Employer or Engineer. If the Works have been The equivalent 1999 provision gave the power to
completed, responsibility will have moved to the the Engineer to “require” such work to be done.
Employer unless the damage is caused by the Once the Contractor had done what it was required
Contractor, so 8.5(e) may again apply if the to do, it could claim compensation. The term
Employer is not remedying the problems. “require” sounds rather loose, but it works and
makes sense. The use of the term “instruction”,
If the Contractor does give a Notice and the though no doubt intended to create clarity, requires
Engineer is then required to issue an instruction, reference to be made back to Sub-Clause 3.5.
he/she may be faced with a difficult decision. The Whereas the equivalent in the 1999 edition (3.3)
damage may be a result of a combination of

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allowed an instruction to be given for the execution effect, in that they are now limited to situations
of the Works or remedying of defects, the 2017 where the party claiming the indemnity is being
equivalent is limited to the execution of the Works. pursued by a third party. The consequences of this
This probably makes no difference if the instruction change are discussed below in the section on
is given during the period before TOC, or even Indemnities by Contractor (17.4) but they apply to
during the snagging period. However, it is clear all of Sub-Clause 17.3, 17.4 and 17.5 and have a
from Sub-Clause 11.1 that there is a distinction, consequential impact on Sub-Clause 17.6.
during the DNP, between defects, the remedy of
which would undoubtedly be part of the execution Indemnities by the Contractor and by the Employer
of the Works and damage, which is not necessarily. were formerly included together in the 1999
Thus, if there is damage caused by one of the edition. There are now two sub clauses dealing with
excluded risks, occurring during the DNP, the them and a third dealing with shared indemnities.
Employer will need to use his powers under Clause
11, rather than under Clause 17. There is room for As can be seen from the analysis below the scope of
confusion when a DNP has started for a Section or the indemnities has shrunk substantially and the
a Part and the whole of the Works is not yet Sub-Clauses are not likely to be much utilised.
complete as during this period both the Engineer
and the Employer will have functions running in Indemnities relating to Intellectual and
parallel. This will be particularly confusing if there Industrial Property Rights (17.3)
is a suggestion that damage is a result of something
caused by the Contractor prior to TOC. The Clause is closely based on that in the 1999
edition. However, there are four changes:
Shared Liability
• The indemnity only applies to third party
The final paragraph of Sub-Clause 17.2 deals with claims and;
the possible situation where the loss or damage
results from a combination of the excluded events • an express inclusion of legal fees and expenses,
and a cause for which the Contractor is liable. As and;
noted above this seems to be intended to read
• the Contractor is entitled to be indemnified
“responsible or liable”. The Contractor is then
where his alleged infringement was a result of
entitled to a proportion of EoT or Cost to the extent
his carrying out a Variation and;
that the excluded events contributed. This assumes
that the Contractor will rectify the loss or damage
• The Contractor is no longer required to
and then make a claim, but, as noted above, it may
indemnify the Employer where a claim arises
not be responsible/liable to rectify any element
from the proper use of the Works.
arising from the Exceptional Events. The provision
is, however a useful one in that it will encourage the Indemnities by the Contractor (17.4)
Contractor to act on its own initiative and attempt
to recover any relevant cost or EoT later. It is a pity These indemnities relate to injury to persons and
that it does not provide for this remedy even where damage to property other than the Works.
the cause is entirely a result of one of the Similar indemnities applied under the 1999 edition.
Exceptional Events. However, both the Contractor and Employer
indemnities are now limited to “third party” claims
Indemnities etc.

As discussed below, the majority of the indemnity The intention is presumably to prevent ether party
provisions have been significantly diminished in claiming against the other in respect of injury or
damage caused to their own staff or property. The

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inclusion of the reference to “third party” initiated against the Employer by the owner may be
represents a considerable change to the contract’s covered by the indemnity.
risk profile. For example, in the case of the
personal injury indemnity, if an employee of the It is not clear why this change was necessary.
Employer or the Engineer under the 1999 Edition
was killed in circumstances where he or she was An error in the equivalent provision in the Gold
carrying out duties in relation to the Works, but the Book (where the provisions have considerable
Contractor was not in any way at fault, the similarity) has been corrected. The word “or” at the
Contractor would nonetheless have been held end of Sub-Clause 17.4(b)(i) has been replaced with
responsible. However, that employee is “and”.
“Employer’s Personnel”, not a third party, and
therefore the 2017 edition does not make the Indemnities by Employer (17.5)
Contractor responsible. The only claims now
covered by the indemnity will be those where a Again, the indemnity is limited to third party
third party is entitled to claim against the claims.
Employer. Under English law this might be the
case where the Employer has responsibility as the The Employer’s indemnity for personal injury only
occupier or has strict liability under worker injury applies where there has been fault on the part of
legislation. the Employer, its Personnel and agents. It does not
apply where the injury is the result of one of the
In the case of property damage, the indemnity (as Employer’s risks.
before) only applies to damage of property other
than the Works, but is again limited to third Under the 1999 edition (in addition to a situation
parties. In this case it is limited to loss attributable where it was at fault) the Employer indemnified the
to fault of the Contractor, its Personnel, their Contractor against personal injury on the basis that
agents and anyone directly or indirectly employed they were difficult or impossible to insure for
by them. There may be circumstances where an injury:
Employer has strict liability against a third party
for property damage and will wish to recover it i. resulting from the Employer’s right to have
from the Contractor. If the fault is that of the permanent works executed over under in or
Contractor, its personnel or agents, this remains a through any land and to occupy this land for
useful provision. However, the previous provision the permanent works,
enabled the Employer to claim against the
ii. which is the unavoidable result of the
Contractor for damages it, its Personnel and agents
suffered as a result of the fault of the Contractor, Contractor’s obligations to execute the
Contractor’s Personnel and agents. This right now Works and remedy any defects and
seems to be excluded. This will not make a great iii. resulting from something covered by a
deal of difference where the fault is that of the clause listed in Sub-Clause 17.3 [Employer’s
Contractor itself. However, where the fault is that Risks].
of a subcontractor or agent, the Employer will now
have to identify the party responsible and pursue None of these indemnifications now apply in
him or her. Where the victim is a member of the respect of personal injury. (i) and (iii) are excluded
Employer’s Personnel or an agent, they will have to in any event because they are (as they were)
pursue the claim themselves. Employer’s risks and a policy decision seems to
have been taken to exclude Employer’s risks from
There may be “third parties” who are closely the Employer’s indemnity. If it is indeed difficult
involved with the Works. For example, in the not- or impossible to insure these risks, it is difficult to
uncommon situation where the owner of the see why they have been removed from the
structure being built is not the Employer, claims Employer’s indemnity.

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The 1999 edition did not include any Employer’s The indemnity is limited to design obligations
indemnity for property damage. The new indemnity which result in the Works not being fit for purpose,
for property damage (other than the Works) does so is much narrower than the fitness for purpose
not apply where the Employer has caused the obligation in Clause 4.1. Further it is an indemnity
damage through fault (for which it would be liable limited to circumstances where the failure is a
anyway, though not on the basis of indemnity) but result of acts, errors or omissions on the part of the
does apply where one the Employer’s risks is the Contractor whereas the fitness for purpose
cause. Thus, where fault is involved the Employer is obligation is not so qualified. Thus, unlike the
absolved from indemnification, but it is liable normal situation in respect of a fitness for purpose
where one of the no-fault events caused the claim. obligation, the burden of proof is shifted to the
Employer to demonstrate that the indemnity
This is again limited to third parties, so would only applies because of such acts errors or omissions.
apply if such third party had a claim against the Rather than rely on this rather limited indemnity, it
Contractor resulting from one of these events. This seems likely that Employers, faced with a product
again would only seem to be possible where the which is not fit for purpose, will rely on their rights
Contractor is under some form of strict liability. to claim damages for breach of Clause 4.1 or 5.3 4,
require remedy under Clauses 7.6 [Remedial Work]
Fitness for Purpose and 11 [Defects after Taking Over] and any
Performance Guarantee or make a claim for
Clause 17.4 now contains the following Contractor’s damages for breach rather than under the
indemnity which needs to be carefully considered. indemnity. It is therefore very difficult to see what
Unlike the other Contractor indemnities, it does not this fitness for purpose indemnity is intended to
only relate to third party claims. achieve.

“The Contractor shall also indemnify and When it was included in the draft of the Yellow
hold harmless the Employer against Book circulated for comment the draft included an
all acts, errors or omissions by the indemnity similar to the one now included and with
Contractor in carrying out the Contractor’s no cap on damages. This drew considerable
design obligations that result in the Works adverse comment including from many contractor’s
(or Section or Part or major item of associations who, in a joint letter stated:
Plant, if any), when completed, not being
fit for the purpose(s) for which they “If the current wording is allowed to stand,
are intended under Sub-Clause 4.1 it will impose a major additional risk upon
[Contractor’s General Obligations]”. international contractors and, in the case
of major infrastructure works or plants,
This (which originated in a slightly narrower form the losses that may be recovered could
in the Gold Book) represents a significant change to easily run into billions of euro and lead to
the way in which the Contractor’s fitness for insolvency, as claims under the indemnity
purpose obligation has been treated. On a free- will be uninsurable”.
standing basis, a breach of the fitness for purpose
obligation under 4.1 would normally lead to a Although the language of the originally drafted
liability based on consequences, rather than cause indemnity has changed this does not seem in itself
and thus whether the Contractor has been negligent to have made a significant difference. However, the
or not in failing to achieve its obligations will be general limits of liability are now allowed to apply.
irrelevant. Its only excuse might be if the failure to Despite the Contractors’ warning the indemnity is
achieve fitness for purpose was caused by an required to be insured.
Employer act.

4
This is a warranty that the completed works will be in
accordance with the documents forming the Contract.

Tel: + 44 (0)20 8614 6200

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Shared Indemnities (17.6) deduction up to Completion or Termination is
100%. It may be less after Completion, but this
This is a new provision (developed from that in the seems unlikely as any event likely to lead to the
Gold Book) which purports to protect both the need for indemnification will most likely arise in
Contractor and the Employer against the full force respect of outstanding elements of the Works.
of the indemnity obligations imposed. The effect is The effect of the Sub-Clause therefore seems to be
very different for the Contractor from that for the to absolve the Employer almost entirely from
Employer. responsibility for its personal injury and property
indemnification responsibilities, limited as they
Where the claim under one of the indemnities is by already are.
the Employer against the Contractor but one or
more of the events listed in 17.2 (a) to (f) has
contributed to the damage which the Contractor is
required to indemnify the Employer, the liability is
Article Author
to be reduced proportionately to its effect. Whether
it is necessary to state this is arguable as Sub- George Rosenberg 5
Clause 17.2 already says that the Contractor shall
have no liability by way of indemnity if any of the
Employer’s risks are the cause.

17.2 (a) to (f) cover every fault of the Employer and

also include the no-fault events which were
formerly called “Employer’s Risks” and are now
“Exceptional Events”. Thus, the indemnity given
by the Contractor will be reduced to the extent one Email: george.rosenberg@corbett.co.uk
of these events applies. This makes sense but the
Sub-Clause is unclear as to whether the exception
to Employer’s liability included in the opening
paragraph to the list (a-f) in Sub-Clause 17.2 is
intended to apply.

The indemnity already covers cases where the

Employer has been negligent, wilful or has
breached the contract.

It is hard to see what is left to apportion.

Where the claim under one of the indemnities is
against the Employer the value of its indemnity is
to be reduced proportionately to the extent that any
event for which the Contractor is responsible under
Sub-Clause 17.1 may have contributed to the loss.
Sub-Clause 17.1 describes the Contractor’s
responsibility up to Completion or Termination as
“full”. This responsibility continues after
Completion in respect of any outstanding work. It
would therefore seem that the “proportionate”

5
The contents of this article should not be treated as legal advice. Please
contact the lawyers at Corbett & Co before acting on or relying upon
anything stated in this article.

Tel: + 44 (0)20 8614 6200

Fax: + 44 (0)20 8614 6222
Email: info@corbett.co.uk
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