You are an event manager engaged by a client telecommunications company to stage an event at which a new phone product is being launched. Your contract with the client says that you are required to indemnify the client against liability caused by the supplier you engage to put on the event.
You engage numerous contractors for the spectacular. There are contracts with the venue, the caterers and the entertainment, which includes a high wire circus act that involves the performers flying around above the guests.
I bet you can guess the next bit. It involves Newton’s laws. A wire breaks. Guests are seriously injured. They sue the host client, but the client looks to you to cover its liability under the indemnity clause. You look at the contract with the circus performers. It contains a limitation of liability capping the amount that can be claimed (even where they are negligent) to the amount of the fees payable to them.
I also call this “piggy in the middle” syndrome.
MICE industry participants are so often involved in arranging things for others. Whether that thing is an event, conference or incentive reward, the same issue inevitably bubbles to the surface…
If you aren’t an event manager or PCO, read on. If you engage sub-contractors to assist you in the performance of your work, or if you purchase products for a supplier that you are to re-sell to your client, the squeeze can get you too!
On the one hand you have a client that you have a contract with. On the other hand you have contracts with suppliers or subbies that you engage to enable you to provide the service or put on the event.
What happens if the client insists on imposing a liability regime that you cannot pass on to the suppliers?
You get squeezed. And if, for example, you get sued by your client because one of your suppliers stuffs things up, you end up carrying the can because you have not been able to make the supplier liable on the same basis. In effect, you are underwriting the client!
The squeeze is an occupational hazard for event managers and PCOs because by definition they have the role of ring-masters arranging a multitude of suppliers to all come together at the right time to produce a co-ordinated and successful event/conference.
Clients now have a tendency to require their service providers to take on the role of “prime contractor”. This means that while the client will allow you to engage third party sub-contractors and suppliers or even to “outsource” some parts of the job, you must agree to remain liable for the overall service provided and it will be no defence to argue that the fault lies with the subbie or supplier.
This of course extends your liability significantly because the general rule is that you are not liable for the negligence of your contractors (you are, of course, liable for your employees). The client contract will probably contain an indemnity by which you agree that you will cover any losses incurred by the client caused by the sub-contractors or suppliers.
What we are talking about, of course, is contract and liability risk-management. The risks inherent in being a “prime contractor” on this basis is that you get squeezed – if the sub-contractors and suppliers will not agree to liability on the same basis as that which the client imposes on you, you could end up bearing the loss yourself.
The other grim possibility is that your insurance will not cover you for such liability because:
• The policy does not cover liability caused by suppliers and subbies (ie it only covers you for your own negligence, not that of your contractors); and
• As I have been saying a lot lately, insurance policies routinely exclude indemnities from cover.
So what strategies are available to reduce these risks?
The classic strategy for managing the squeeze is to ensure that your contracts with suppliers provide for the same liability regime that you have vis-à-vis your client. This is known as a “back-to-back” arrangement. Ideally, in the contracts with suppliers and subbies, the provisions dealing with issues such as limitation of liability, indemnity and insurance will be mirror images of the clauses that you have agreed with your client.
The trouble is that suppliers often have their own forms of contract and are reluctant to embrace changes, especially on the liability issues. Not only that, if you have many such contracts to negotiate, you’ll spend half your life debating liability clauses (or else run up a hefty legal bill).
And here is the other sinister issue – if you ask suppliers to give you an indemnity because you have had to give one to your client, the supplier’s insurance probably won’t cover them. There will thus be a string of indemnity clauses and in each case the insurers will be denying cover – something of a domino effect. But, as far as the client is concerned, the buck stops with you!
Ask your client whether it is truly necessary for the client to have an indemnity for suppliers and contractors. I have argued that the client will usually be afforded adequate protection under its common law rights – if a supplier is negligent and the client suffers loss, the client would be able to sue the supplier. If the supplier has appropriate insurance, the matter should resolve.
Reasonable clients are prepared to listen. Reasonable clients will not want you to be caught in the squeeze. Reasonable clients won’t want you to be in a position where you are forced to carry uninsurable risk, if only because some day the client may need you to be able to make a claim under your policy.
 But limitations of liability and indemnities are not the only matters that contribute to the squeeze. Of critical importance is the need to properly express what the suppliers are to do once engaged; ie describing the goods or services to be provided.
We’ll look at that next time.
For further details contact
Matt Crouch on (02) 8281 7800 or email mcrouch@bartier.com.au.
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