What should I check in the indemnity clause of a subcontract?
Check how wide it is. A subcontract indemnity is a promise to make good the builder's losses, and it is routinely drafted wider than your fault, your insurance and your ability to pay. The reasonable version is proportionate (reduced to the extent others caused the loss), capped, confined to direct loss with a mutual exclusion of consequential loss, and within what your insurance actually covers.
The three drafting choices that widen it
First, the trigger: loss "arising out of or in connection with" the works, rather than loss caused by your breach or negligence. Second, the reach: extending the indemnity to consequential loss. Third, what is missing: no proportionality, so your liability is not reduced where someone else caused the loss.
Each one on its own moves risk you can't control onto you. Together they can make you the insurer of the whole project, and uninsured indemnity exposure is a bet-the-company clause hiding in boilerplate.
Consequential loss: the exclusion worth asking for
Consequential loss is loss beyond the direct and natural result of a breach, such as lost profits, loss of opportunity and financing costs. Australian courts read the term by the contract's own words rather than a fixed legal meaning, so the drafting decides it.
A mutual exclusion of consequential loss is one of the most valuable, least controversial asks available. Many builders accept it because it protects them too.
Check it against your insurance
An indemnity your policy excludes is yours alone. Send the indemnity and insurance clauses to your broker before you sign and ask one question: if this clause were called on, would my policy respond? If the answer is no, the clause needs to change, or the price does.
Know where your contract stands
Clause-by-clause risk report against your state's Security of Payment laws in about two minutes.
Scan my subcontract freeCommon questions
Are broad indemnities normal in Australian subcontracts?
They are common. Common is not the same as reasonable: the market-reasonable version is proportionate, capped and limited to direct loss. The scanner rates the indemnity and insurance clauses in every report.
What is a proportionate indemnity?
One that reduces your liability to the extent the loss was caused by someone else, such as the builder, another trade or the principal. Without it, you can be liable for the whole of a loss you only partly caused.
What does consequential loss mean in a subcontract?
Loss beyond the direct and natural result of a breach, such as lost profits, loss of opportunity or financing costs. Its meaning turns on the contract's own words, so check how the exclusion clause defines it, or whether there is one at all.
Terms in this guide
Keep reading
General information for Australian subcontractors, not legal advice. Statutory deadlines and details vary by state and change over time; verify them before relying on them. Written by Mat Kennedy at The Construction Contracts Co.