This one isn’t anywhere close to the magnitude of the Phoenix hotel mess that I wrote about recently, and it’s probably not as bad as the newspaper article makes it sound, but it still could be a mess. I hope the City of Tempe has lawyers who know enough to get good indemnity agreements and bonds from private parties who build commercial projects on city-owned property. That’s a way for the city to protect itself against what happened here, where contractors are claiming that the project developer hasn’t paid them for work they did on the project.
That reminds me of a truism that I heard once: an indemnity is only as good as the financial statement of the party giving it. That means that if someone promises you that they will cover the cost if something they do results in a claim against you, you better make sure that they have the financial strength to make good on that promise. That’s why there are indemnity bonds.
And what’s an indemnity bond? Here’s how I describe it to clients in the context of someone acting as a fiduciary: it’s an insurance policy against you absconding with the money that’s being entrusted to you. In the construction context, it’s an insurance policy against you causing a me a liability that you can’t satisfy.
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