TASB Risk Management Fund
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Why You Should Be Wary of Contractual Indemnity Clauses

December 14, 2010 Marcos Mendoza

general topics

Running a school is difficult. Since members cannot economically provide all necessary services, vendors must be found to assist with a variety of functions and events. This means administrators deal with third-party contracts and confusing legal language. Many times, these documents have “hold harmless and indemnity” provisions which attempt to make a member responsible for the wrongdoing of a third-party. Essentially, this language is a way for the vendor to transfer risk liability to you. These provisions can have unintended consequences that are detrimental to members.

The Fund always advises that any vendor agreements be reviewed by your general counsel prior to signing. Most attorneys for third-parties will remove the offending language from their standard agreements, but spotting it can be difficult for those who are not trained as attorneys. Involving your general counsel to make drafting changes before signing is the most prudent course of action.

Indemnity clauses and hold harmless provisions often arise when the district is negotiating for the use of third-party facilities, such as for graduation. They can also be seen when third-party vendors are hired to provide entertainment or equipment; bounce houses or lighting fixtures are examples.

Indemnity clauses are viewed by the courts as an attempt to make a gift of public funds or lending public credit for private purposes. While restrictions in the Texas Constitution often render such contractual provisions void and unenforceable during later litigation, it can cost tens of thousands of dollars in legal fees and take several months or years to get the matter dismissed. Many lawyers representing third-parties are simply unfamiliar with the obligations and immunities of school districts. Lastly, any disputes arising from vendor contracts are generally excluded from Fund coverage. All of the above are great reasons to get your general counsel involved early in the process.

Contracts are an inevitable fact of organizational life, particularly with the complex challenges faced by public education entities. Contact your general counsel when signing these vendor agreements—initial caution can save a great deal of difficulty and expense later.

Tagged: "legal topics"