Indemnify Definition

by | April 2, 2012 1 Comment

Recently a contract negotiation expert asked me, how do you convince the person you are negotiating with why you should be able to limit the scope of the indemnify definition? We previously explained indemnification (where the parties are worried about who will be responsible for third party lawsuits) in detail in our indemnification video. We also provided a blow by blow breakdown of an actual indemnity sample hold harmless clause. Check them out and let us know what you think! Today we are going to explain why you want to limit the scope of a hold harmless clause, whether you are negotiating a hold harmless agreement sample or a contract of indemnity. SUBSCRIBE TO WHICHDRAFT NOW! Click Here! Salespeople Love Indemnities! In particular, salespeople often push hard to include any kind of indemnification clause that a customer asks for, because the salesperson often is unaware of what the clause means and, even if she knows, she has trouble placing much importance on a provision that is unlikely to cause any problems in the future, especially in light of the immediate opportunity to close a deal and earn a commission. Short Term vs. Long Term Business Planning. I like to tell a business development person that this is a classic short term vs. long term business planning issue. Sometimes a company makes short term decisions, such as to offer a substantial discount on an older product line to quickly clear out inventory. This decision is likely to achieve its goal right away. Other times, the company makes a long term decision, like buying another company in order to acquire their talented employees and products. This decision is unlikely to achieve its goal (increased profits through better executing employees and products that offer greater value to your customers) right away, particularly because improved financial performance from the acquisition has to pay back the actual acquisition cost. Limiting the scope of an indemnify definition is a long term business planning decision. As a company negotiates many, many contracts over time, if it offers unlimited indemnities in each one, then at some point in the future the company has greatly increased the chances it will have to pay out for an indemnification claim. That payment could be substantially more than the value realized from any particular contract deal that contains just one of these indemnities. As a result, it is good business practice to limit the scope of your indemnities. Save Time and Game Plan! That said, I think that sales executives should not be leaving indemnification decisions to contract managers and attorneys. To me, this is not a legal issue, but a risk exposure issue, and, as a result, every company should convene a meeting of its chief sales, procurement, financial and legal executives (and anyone else who has budget authority over a budget that will be impacted by an indemnity claim) and determine a uniform negotiating strategy with all opening and back-up positions for all of the common negotiating permutations that are expected to arise. Through this knowledge management strategy, they will be able to greatly improve negotiation results and radically increase the speed of indemnification negotiations. This long term focus should be effective in convincing your negotiating counterparts of the importance of limiting the scope of an indemnify definition. SIGN UP FOR FREE EMAIL CONTRACT TIPS HERE!

1 Comment

  • Achayata says:

    I haven’t gotten to seinttg up any pages yet, but I am planning to look into it. After reading your article, I don’t see anything odd or overly controlling. In fact, it looks like most ToS agreements I have read. I suspect you would find similar constraints in the Facebook ToS with the major difference being that Facebook doesn’t bother to enforce its rules.