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Managing Liabilities Created by Third Parties

Posted by Mollie Werwas on November 6, 2017 at 10:42 AM

When hiring a contractor, public entities are not exempt from blame if the contracted third party inflicts some form of harm/damage. The liability is very much associated with the public entity, regardless of their direct involvement. 

So, What Should Public Entities Do?

To effectively manage the third-party risk, public entities should negotiate their position with the company that they are contracting with. Depending on the type of loss, the party best suited to manage the loss should be the one liable for it. Therefore, public entities should get in touch with their legal counsel and insert a few provisions into the contract, including:

  • Defense and indemnity provisions
  • Insurance requirements

Other than contractual obligation, there are other ways for public entities to protect themselves from losses induced by third parties. Hired contractors occasionally offer low-cost services and can only absorb a small portion of liability. In such cases, public entities should make sure that their own insurance is sound enough to protect the entity.

There are times when no formal contract exists between public entities and their third-party contractors. Consequently, the former must make sure to partner up with reputable companies only and ensure that the proper supervision is provided over their dealings.

Keep Clear from Risk

To minimize the risk of third-party liability, public entities must make sure that the employees that come into contact with potential third-party partners receive the proper training and information on the risks involved. Also, the indemnity and insurance provisions can, and often should, become non-negotiable. After pinning the contract down, public entities should maintain the relationship with their contractors as they are in an effort to preserve the line between employee and vendor. The boundaries ought to be clearly outlined for all parties involved.