Onerous Clauses to Hunt For: Indemnities, Set-Off and Uncapped Liability

Most contractors read a subcontract for the price, the programme, and the payment terms. The clauses that can actually end the business sit further back, drafted in dense language that is easy to skim past. Uncapped liability, broad indemnities, and wide set-off rights rarely bite on a good project - which is exactly why they get signed. They bite on the one project that goes wrong, and by then the exposure is fixed. Hunting these clauses out before signature is the single highest-return hour of contract review you will ever spend.

Why these three clauses are different

Plenty of clauses are unfavourable. These three are dangerous because they are open-ended - they do not cap your downside at a knowable number. A tight payment term costs you cash flow; an uncapped indemnity can cost you the company. The distinction matters because it changes how you negotiate. With most terms you are haggling over degree. With open-ended liability you are trying to convert an unbounded risk into a bounded one, so that on the worst day imaginable you know the maximum you can lose. That is the whole game.

This is also why signing feels safer than it is. A signed subcontract looks like protection, but a signature on onerous terms simply locks in the exposure - a point we make in detail in why signing a contract is not the same as being protected. The protection comes from what the words say, not from the fact that a deal was struck.

Uncapped liability

A liability cap sets the maximum the contract can expose you to. No cap, or a cap set at a multiple of the contract value with wide exclusions, means a modest subcontract can generate a claim many times its worth. Picture a QAR 4 million package where a defect contributes to downstream delay across a Gulf project: without a cap, the theoretical exposure is the whole chain of loss the main contractor can pin on you, not the value of your works.

The fix is to negotiate an aggregate cap on total liability, expressed as a defined sum or a percentage of the subcontract value. Equally important is what the cap does not cover - the carve-outs. Some carve-outs are reasonable and often unavoidable, such as death or personal injury and fraud. But watch for carve-outs that swallow the cap: if delay damages, indemnity claims, and IP claims are all excluded from the limit, the cap protects you against almost nothing. Read the exclusions to the cap with more care than the cap figure itself.

Broad indemnities and consequential loss

An indemnity is a promise to reimburse the other party for defined losses, and it can run far wider than ordinary damages for breach. A well-drawn indemnity is targeted - you indemnify against loss caused by your negligence or your breach. A dangerous one is broad and untethered: you indemnify against any and all loss arising in connection with your works, regardless of fault, and including consequential or indirect loss such as the main contractor's own lost profit or liquidated damages passed down the chain.

The word to hunt for is consequential, and its cousins indirect and loss of profit. An indemnity that reaches consequential loss can dwarf the direct cost of the actual problem. Three negotiation moves matter here. First, tie the indemnity to fault - you indemnify for loss caused by your negligence or breach, not for loss that merely touches your scope. Second, carve out consequential and indirect loss, or at least cap it. Third, align the indemnity with what your insurance actually responds to; an indemnity that exceeds your cover is a liability you carry personally on your balance sheet.

That last point is the practical test. Ask your broker what your policy covers, then read the indemnity against it. Any gap between the two is uninsured exposure - risk that lands on the company itself. Closing that gap, or pricing it, is the point of the exercise. A useful discipline is to treat every indemnity as a number rather than a paragraph: work out, on the worst realistic scenario, what the clause could actually cost you, and compare it to your policy limit and your balance sheet. If the honest answer is more than the business could absorb, the clause is not boilerplate - it is the single most important line in the contract.

Wide set-off and contra-charge rights

Set-off is the main contractor's right to deduct sums from money otherwise due to you. A narrow, fair set-off right lets them deduct sums that are properly due and notified. A wide one lets them withhold payment against unquantified, unproven, or merely alleged cross-claims - which turns your certified payment into a bargaining chip they hold whenever there is any dispute anywhere on the project.

Contra-charges are the same mechanism in working clothes: costs the main contractor alleges it incurred because of you - attendance, cleaning, remedial work, delay - deducted from your account, often with thin substantiation. Left unchecked, wide set-off and contra-charge rights can starve your cash flow at exactly the moment you can least afford it. Negotiate for set-off limited to sums that are due and payable, that have been notified in advance with a breakdown, and ideally that have been determined or agreed rather than merely asserted. A requirement for prior written notice and substantiation, on its own, transforms how this clause behaves in practice.

How to hunt them down in a real subcontract

These clauses hide in predictable places. Liability caps and their exclusions sit in the limitation-of-liability section, sometimes split between the conditions and a schedule. Indemnities cluster around insurance, IP, and health-and-safety provisions and are easy to miss because they read like boilerplate. Set-off and contra-charge rights live in the payment clauses and in general provisions on deductions. Read all of them together, because they interact - an uncapped indemnity feeding a wide set-off right is a compounding problem, not two separate ones.

When a main contractor hands down its standard subcontract, assume the risk allocation has been drafted to favour the main contractor, and read accordingly. Our companion piece on the red flags in a subcontract handed down by the main contractor walks through the wider set of provisions worth checking. The three clauses in this article are where the balance-sheet risk concentrates, so start there.

Negotiating them back

You will not strike every onerous clause, and you do not need to. The goal is to convert unbounded risk into bounded, insurable risk. Prioritise: a liability cap with sensible carve-outs, a fault-based indemnity that excludes or caps consequential loss, and set-off confined to notified, substantiated, due sums. Frame each ask commercially rather than legally - an uncapped indemnity that exceeds your insurance is a risk you cannot price, and a risk you cannot price is one you have to load into your number or decline. Main contractors negotiate these points more often than SMEs expect, because a subcontractor who understands the exposure is a subcontractor less likely to fail mid-project.

Where the wording is dense or the stakes are high, a focused pre-signature review pays for itself many times over. Catching an uncapped indemnity before signature costs an hour; discovering it after a claim can cost the company. Our prevention and contract review service exists to find these clauses while they are still negotiable.

Frequently Asked Questions

What does uncapped liability actually mean for my business?

It means there is no contractual ceiling on what a claim under the subcontract can cost you. With a cap, you know the maximum exposure in advance - a defined sum or a percentage of the contract value. Without one, a modest package can generate a claim many times its worth, because your liability follows the loss the other party can attribute to you rather than the value of your works. For an SME, that is the difference between a bad project and an insolvency event. Negotiating an aggregate cap converts an unknowable risk into a number you can actually manage and insure against.

What is the difference between an indemnity and ordinary damages?

Ordinary damages for breach are subject to legal limits - the loss must generally be foreseeable and reasonably connected to the breach, and the claimant must mitigate. An indemnity is a contractual promise to reimburse defined losses, and it can be drafted to bypass several of those limits, reaching further and wider than a normal damages claim. That is why a broad indemnity is more dangerous than it looks: it can capture consequential loss, losses you did not cause, and amounts far exceeding the direct cost of the problem. Always tie an indemnity to fault and check it against your insurance cover.

Why is consequential loss such a red flag in an indemnity?

Because consequential or indirect loss is where the big numbers live. The direct cost of a defect might be the cost of putting it right. The consequential loss can include the main contractor's lost profit, the liquidated damages levied against it upstream, and the knock-on cost across the whole project - sums that can dwarf the value of your subcontract. An indemnity that reaches consequential loss exposes you to that entire chain. The standard defensive move is to carve consequential and indirect loss out of the indemnity, or at minimum to cap it, so your exposure stays connected to the actual problem.

Can a main contractor really withhold my payment over an unproven claim?

If the set-off clause is drafted widely, yes - which is exactly why the clause deserves scrutiny before signing. A broad set-off right lets the main contractor deduct against alleged or unquantified cross-claims, turning your certified payment into leverage in any dispute. Contra-charges work the same way, deducting alleged costs from your account with thin substantiation. The defence is to negotiate set-off down to sums that are due and payable, notified in advance with a breakdown, and ideally agreed or determined rather than merely asserted. Requiring prior written notice and substantiation alone changes how the clause operates in practice.

How do I know if an indemnity exceeds my insurance cover?

Ask your broker. Read the indemnity wording against your policy - its scope, its exclusions, and its limit - and identify anything the indemnity promises that the policy would not respond to. Common gaps include consequential loss, contractual liability the insurer excludes, and amounts above your policy limit. Every gap between what you have promised to indemnify and what your insurer will pay is uninsured exposure that lands on the company itself. Closing that gap, capping the indemnity to your cover, or at least pricing the residual risk into your number is the practical purpose of reviewing the two documents side by side.

Find these three clauses before you sign, cap and carve them back to insurable limits, and the worst project of your career becomes survivable instead of fatal.

Note: This article is general information on contractual risk allocation and does not constitute legal or insurance advice on any specific subcontract.