Fiscal Note - SB 0324 - Construction Indemnification Agreements
L.R. NO. 0819-01
BILL NO. SB 324
SUBJECT: Construction Indemnification Agreements
TYPE: Original
DATE: February 7, 1997
FISCAL SUMMARY
ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED FY 1998 FY 1999 FY 2000
State Road Fund (Unknown) (Unknown) (Unknown)
Total Estimated
Net Effect on All
State Funds (Unknown) (Unknown) (Unknown)
ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED FY 1998 FY 1999 FY 2000
None $0 $0 $0
Total Estimated
Net Effect on All
Federal Funds $0 $0 $0
ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED FY 1998 FY 1999 FY 2000
Local Government $0 $0 $0
FISCAL ANALYSIS
ASSUMPTION
Officials of the Office of the Attorney General, the Office of State Courts
Administrators, the Department of Insurance, the Department of Corrections
and the Office of Administration assumed there would be no fiscal impact to
their agencies.
Officials from the Department of Transportation (DOT) assumed the DOT would
have to purchase additional insurance to protect itself, in lieu of relying
on indemnification and hold harmless clauses. DOT could require its
contractors and subcontractors to do the same. This proposal could cause DOT
to bear additional litigation costs and legal liability for risks which it is
properly and contractually assigning to the contracting and engineering firms
which design and construct our roads, bridge and highway structures. Another
alternative would be that DOT design and/or build more of its own public
works projects with its own staff, since the private engineering and
construction firms would no longer have the total legal responsibility to
stand behind their work. DOT officials could not determine the total cost of
this litigation because it would be dependent on whether or how the
department insures itself for the risks it could no longer receive
indemnification for.
Oversight assumes that costs in any given fiscal year would be dependent upon
the increase in contract litigation suits and additional insurance costs.
FISCAL IMPACT - State Government FY 1998 FY 1999 FY 2000
(10 Mo.)
STATE ROAD FUND
Cost - DOT
Contract litigation/insurance (Unknown) (Unknown) (Unknown)
FISCAL IMPACT - Local Government FY 1998 FY 1999 FY 2000
(10 Mo.)
0 0 0
FISCAL IMPACT - Small Business
No direct fiscal impact to small businesses would be expected as a result of
this proposal.
DESCRIPTION
This bill declares indemnity or "hold harmless" clauses in construction
contracts void as against public policy. A "hold harmless" clause is one
where a party contracts away its possible liabilities for future negligence.
Contracts already in existence are exempt. The bill does not apply to
insurance contracts or contractual provisions requiring a party to name
another party as an insured.
This legislation is not federally mandated, would not duplicate any other
program and would not require additional capital improvements or rental
space.
SOURCES OF INFORMATION
Office of Administration
Department of Insurance
Office of the Attorney General
Department of Transportation
Office of States Courts
Department of Corrections
This Fiscal Note is not an official copy and should not be quoted or cited.