What's the relationship between privity and indemnification clause?


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    Brett Bowers

    Indemnification is the legal relationship where one party takes on responsibility for the loss or damage suffered by another party. AIA contracts contain extensive references to this concept throughout - termed 'hold harmless" provisions - as the owner, architect, and contractor each indemnify the other in various ways (via contract vs via agency). In A201, for instance, the contractor is obligated to indemnify the owner and architect against damages or injuries suffered as a result of the contractor's negligence. It's also common for owners to demand indemnification from the architect which may extend far beyond the architect's normal errors and omissions legal liability and may be uninsurable.

    Privity, on the other hand, is the premise that only the parties to contracts are able to sue to enforce their rights or claim damages. That simply means that a third party can't sue a party to a contract, as no contractual obligation exists. In the realm of construction contracts, this mostly comes into play with subcontractors or suppliers - which is effectively the reason why mechanic's liens exist. For instance, a subcontractor cannot sue an owner for failure to make payment to the contractor (who in turn makes payment to the subcontractor), since he has no contractual relationship with the owner. Since the sub cannot sue the owner, his remedy would be to place a mechanic's lien on the property. (The sub can, however, sue the contractor for breach of contract for failure to make payment)

    A mechanic's lien is a legal encumbrance placed on a property, in the form of a security interest in the title to the property, which is available to any person who has worked to improve the property. They are used by workers to compel property owners to compensate them for their labor, and are usually filed if the owner defaults on those payments. This lien will appear in public property records which means that the owner will have a hard time selling the property, for example, before paying the contractor.

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