Desert

Indemnity, Lions and Tigers….OH MY!: Has the Pendulum Swung Too Far?

I recently went on safari to the Serengeti in Tanzania. It was an amazing adventure and quite remarkable being 10 feet from giraffes, elephants, lions and wildebeests!  During our trip we stayed at lodges which were (truly) in the middle of the bush (actually, Africa).  In some places, Masai warrior guides armed with guns or a bow and arrows (!) would accompany us from our tents to the dinner tent …in order to stave off hungry lions or cheetahs looking for dinner. Fortunately, we all successfully avoided becoming appetizers and eluded dangerous skirmishes (except for a baboon who stole one of our lunch boxes).

Such close encounters are rare (mostly due to the skill and training of the guides) but likely must happen since the purpose of the trip is to “commune” with (or at least get a good look at) wild animals over whom humans have no control because, after all, they are wild.

At one camp site in the midst of a vast expanse of land with no civilization in sight for miles, there was an informational sheet in our tent.  It contained the following paragraph:

Our camp offers guided nature walks, game drives, and similar activities. In order to participate in any of these activities, you must sign an indemnity form which indemnifies the camp from any injuries, damage or distress that may occur while participating in the activities. You will not be permitted to participate in any of the activities if you do not sign the form.

HOW DO YOU SAY INDEMNITY IN SWAHILI?

I couldn’t believe it!  Indemnity had come to the Serengeti!

Is it me or have our concerns about risk, its management, and its allocation gone a bit too far?

Does it say something about our society that an indemnity clause should appear on an informational sheet in the middle of the Serengeti?

Has the pendulum swung too far?

I think so.  At least that’s my conclusion based on my 25+ years business contracting experience as well as some recent data from the International Association for Contract and Commercial Management (IACCM).

WHAT THE DATA SUGGESTS

For the past 10 years, IACCM has conducted surveys relating to the most frequently negotiated contract terms.  Surveys since 2007 have consistently shown that the two most highly negotiated terms each year were…………..Limitations of Liabilities and Indemnity.

In the 2011 IACCM survey of 8,000 negotiators from 1,123 worldwide organizations, the Scope and Changes clauses appeared as numbers 16 and 18, respectively on the list of most frequently negotiated.

By contrast, when asked about the most frequent source of actual dispute during contract implementation, the same respondents listed the following areas:

Delivery/ Acceptance:   41%;

Price/ Price Changes:   38%;

Change Management:  32%.

It is important to note that actual disputes relating to Limitations of Liability and Indemnity came in at 16% and 14%, respectively.

This data confirms my experience:  Far too much time is being spent in negotiations dealing with the more theoretical “what if” issues at the expense of dealing with the real world issues. The origins of the contract disputes I have been involved with over the years most frequently revolve around the parties differing interpretation (or inadequate description) of the scope of work (service or product),  changes to the work, and the impact of changes on pricing. I think many contracting people share the same observation.

LET’S BE MORE CENTRIST

(I’M NOT TALKING POLITICS)

That’s not to undermine the significance of the risk management (“legal”) clauses. For years to come, lawyers will be analyzing and litigating the Limitation of Liabilities and Indemnity clauses in the BP Gulf of Mexico disaster and Toyota supplier/ customer contracts in light of the ultimate tragic loss of life and economic loss.  Worst case scenarios happen.

I’m just advocating that we do a better job of putting these issues into perspective and balancing them with those issues calculated to ensure greater contracting success. Let’s spend more time on crafting a more detailed and well thought out statement of work and method to manage changes.  Let’s be more mindful of when it makes sense to emphasize indemnity and when it makes less sense.

In other words, let’s get that pendulum back a bit more to the middle.

ANY SUGGESTIONS OR FEEDBACK?

It takes courage to “buck the trend” and many of us are concerned that our jobs would be in jeopardy if we don’t always insist upon the one sided risk management clauses many of our companies proffer.

My experience, however, demonstrates that engaging in this balancing exercise yields more respect and cooperation internally, from our client, and from the organization with whom we’re negotiating.

I welcome and am interested in your experiences, suggestions, and feedback.

0 0 0 0 0

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>