Contractor Risk in Local Contracting

Working with the federal government has its advantages and disadvantages, but one major advantage is the consistency of regulations at the federal level. Contracting in the highly regulated federal sector involves a clear and uniform body of rules and regulations to be followed. An experienced federal contractor can become quite familiar with the ins and outs of federal procurement regulations and what will typically be required to follow them.

Contractors who have focused their efforts mainly in the federal space may have trouble expanding into state and local markets, but with hundreds of billions of dollars spent on state and local government contracts each year, they are a revenue source that shouldn’t go untapped. One of the biggest hurdles a federal contractor must overcome is the adjustment from the consistence and predictability of federal regulations to the idiosyncrasies of various city, county and state policies. These policies can seriously affect the amount of risk associated with a contract. It’s important to be familiar with how contractor risk changes with various clauses. Here are some areas to keep an eye on:

Indemnification and “Hold Harmless” Clauses

There has been a sweeping trend in local contracts toward broader and broader indemnity clauses. Basically, an indemnity clause guarantees that the contractor will protect, or “hold harmless,” the agency from any losses, claims or lawsuits that may arise from the contract performance. This clause will hold firm regardless of the extent of the contractor’s fault in any such losses, although all but the most stringent indemnity clause will usually make an exception for situations in which the claim or loss is 100% due to the actions of the contract Owner. In addition to indemnifying the agency from such claims, the clause may also make the contractor completely responsible for the agency’s attorney fees and any settlement costs arising from lawsuits. Many commercial and private-sector contracts also include indemnification clauses, but these are much less extreme.

Limited Liability Clauses

On the other end of the spectrum from “hold harmless” clauses, limited liability clauses protect the contractor. A typical limited liability clause puts a cap on the amount of money a contractor can be held responsible for, if something should go wrong with the contract. Limited liability clauses may also put limits on the sort of damages that can be claimed against the contractor. A contractor accustomed to working in the private sector may be surprised to find these protections conspicuously absent from a local-level contract. The other side to pushing for increased indemnity is trying to avoid limiting contractor liability whenever possible. Even if the contract in question provides for limited liability, proceed with caution! Some state laws prohibit city and county governments from limiting the liability of their contractors, so that clause could turn out to be null and void, leaving the contractor responsible for whatever financial damages may come up – even into hundreds of millions of dollars.

Risk Protection with State and Local Contracts

Unfortunately, there isn’t always much to be done to change the language of the contract. Many agencies’ indemnity and limited liability clauses are mandatory and cannot be changed – if you won’t accept the contract as-is, you can’t play ball. Even when this is not the case, attempting to change these clauses to decrease contractor risk during contract negotiation is an arduous process, and there is no guarantee that the agency will accept the contract without these clauses in place. For this reason, it’s wise to have a lawyer look over the terms of a contract and explain the risk potential to you before you begin writing your RFP response. Knowing the risk potential before the contract is entered into gives a contractor more opportunity to plan to avoid situations that could result in losses, claims, or lawsuits.

craig enterprise builders said,

March 2, 2009 @ 1:58 pm

please give me lead info on new projects. scott craig

editor said,

March 3, 2009 @ 1:32 pm

Hi Scott,

I’ll have an Onvia Contracting Specialist get in touch with you to make sure you’re getting relevant leads for your business.

Hal S.Hamburg/A.C.H Construction said,

October 19, 2009 @ 8:35 am

Please send me information on how to obtain leads. GC in Largo,Fl 10-19-2009

editor said,

October 23, 2009 @ 10:22 am

Hi Hal, I’ll be sure to do so right away.

Willie Hughes said,

November 18, 2009 @ 7:08 am

Can you send me leads on construction contracts for asphalt paving, concrete replacement or new projects in my area? I’m having a hard time narrowing down my search. Anything in the Denton and Dallas Tx, and surrounding areas would be helpful!

editor said,

November 19, 2009 @ 9:37 pm

Hi Willie,

Thanks for the comment. I’ll have an Onvia Contracting Specialist get in touch with you to make sure you’re getting relevant leads for your business.

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