Construction & delivery risk - BESS projects - "Indemnities" and the wrap-up
BESS indemnities and the wrap-up
This article has been co-authored by Suriya Edwards from Freeths, UK and Volker Herrmann from orka, Germany. We advise on energy projects where delivery risk is material - particularly where projects are complex or under pressure.
Our view: “Indemnities are where your largest unpriced risks usually sit!”
Indemnities deal with a different category of risk. It asks what happens when a third party becomes involved, or when losses fall outside the normal contractual framework? In BESS contracts, indemnities commonly address personal injury and death, damage to third-party property, breach of law (environmental, health & safety, regulatory), intellectual property infringement and supply chain failures (e.g. unpaid subcontractors or breach of anti-corruption regulation).
Indemnities are a useful backstop in contracts because they operate on a different footing from standard damages under English law. They operate uncapped or could be differently capped. They tend to cover third party claims which can be significant and unpredictable. To control how they operate, such contracts tend to include well-drafted indemnity regimes which include notice requirements (failure to notify can invalidate the claim), control of defence (typically given to the indemnifying party) and settlement restrictions.
These are not procedural niceties, they are often determinative of whether the indemnity works in practice. Indemnities are often seen as “boilerplate” even if in practice they are not. They can include key risks, for example, broad indemnities can become de facto unlimited liability. Not all indemnified risks are insurable, and some indemnities require negligence, others strict liability.
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So, what must you do?
These provisions are often overlooked, but they require careful attention if they are to work in practice. They can seem chimerical, but they hold within them very real business risks that can displace a project’s economics.
A note on German law:
German law does not have a single, unified concept of "indemnity" equivalent to the common law understanding. Instead, contractual indemnities in BESS contracts governed by German law are typically structured as claims for release or hold harmless (Freistellungsansprüche) or as independent guarantee promises (selbständige Garantieversprechen). A claim for release or hold harmless obliges one party to hold the other harmless from and against specified third-party claims or losses. German law treats a contractual indemnity as a contractual obligation whose breach gives rise to the general damages regime under the German Civil Code.
This has important consequences: First, where an indemnity is contained in standard business terms, it is subject to the statutory content control. An indemnity that imposes strict liability on the indemnifying party may be held unreasonable and thus void. Second, the scope of a claim for release or hold harmless must be clearly defined; overly broad indemnities risk being struck down as intransparent and void.
In the context of BESS supply contracts specifically, German sales as well as the law on contracts for work and labour provide statutory warranty regimes that interact with contractual indemnities. A buyer's statutory rights in respect of defective battery systems, including repair, replacement, price reduction and rescission, cannot be entirely excluded in standard terms. Contractual indemnities in BESS supply contracts must therefore be drafted with an awareness of these mandatory warranty rights to avoid conflicts that could render the indemnity provisions unenforceable.
From a German law perspective, what must you watch out for?
Fault requirement: Indemnities imposing strict liability in standard terms will in all likelihood not be enforceable. Consider whether a fault-based threshold (at least negligence) is appropriate
Interaction with statutory warranty: In BESS supply contracts, ensure that indemnity provisions do not conflict with mandatory warranty rights under German sales law or the law on contracts for work and labour. Overlapping remedies should be clearly delineated
Indemnities therefore are a backstop protection. These clauses are governed by contract procedure. In order to activate it and to utilise it effectively it is essential to understand how they work.
The wrap up
The real complexity in EPC/BESS supply contracts is not in each mechanism individually but in their interaction. There could be overlaps between liquidated damages and general damages, which is why often we also see no double recovery clauses and associated mechanisms which deal with the liability related position in terms often not seen alongside such provisions but tucked away elsewhere within the contract. Indemnities and liquidated damages both interact with limitation of liability provisions. Poorly drafted technical schedules can undermine legal remedies for example where performance metrics undermine liquidated damages regimes or discrepancies exist between documents, with no clear precedence provision. Exhausting the liquidated damages’ cap can trigger termination rights but only if correctly drafted/exercised and within the time-limits.
So, what are the key take-away points?
The headline liability cap is not the real risk - always look at “what sits outside it”
Liquidated damages trade certainty for completeness. They are predictable but may not fully compensate loss
Indemnities are where “unknown unknowns” sit - treat them as potentially “high-impact exposures”, especially where uncapped
Insurance must align with the contract. If the risk cannot be insured, it is ultimately being retained
Clarity in drafting equals protection in practice. So, ambiguity in performance metrics, carve-outs and claims processes is where disputes arise
BESS contracts don’t eliminate risk, they decide where it lands. The difference between a bankable project and a distressed one is often not the asset, but whether that risk allocation holds when the project comes under pressure. This is where we come in.
English law gives parties significant freedom to allocate that risk but it also enforces the structure strictly. The strongest contracts are not those that push risk aggressively onto one party, but those that align liability with control, transparency and insurability, define remedies with precision, and anticipate what happens when things go wrong, not just when they go right. As this article demonstrates, a cross-jurisdictional understanding of these mechanisms is not merely academic; it is essential for any party structuring or financing BESS projects across European markets to better manage risk.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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