Honorable Robert Bunda

President of the Senate

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committee on Ways and Means, to which was referred S.B. No. 1843 entitled:

begs leave to report as follows:

The purpose of this measure is to amend the public procurement code to prohibit a governmental body from requiring a contractor for construction design services to indemnify the government for the government's negligence, but to allow the governmental body to require the contractor to indemnify the governmental body for the contractor's negligence.

Your Committee finds that the prevailing practice in state and county contracts is to require the contractor to indemnify, defend, and hold harmless the government in the event of negligence of the employees and agents of the government. Your Committee further finds that this contracting practice is against public policy on the basis that every party to a contract should be liable for that party's own conduct.

Your Committee also finds that indemnity clauses are the subject of frequent litigation involving their interpretation and the true intent of the parties. Your Committee learned that "duty to defend agreements" are insurable only when the policyholder is determined to be negligent. The insurance policy does not cover a public agency for the public agency's wrongdoing.

This measure is intended to resolve these difficulties and thereby to facilitate bidding on government contracts. In doing so, it will encourage economic growth and discourage costly and time-consuming litigation.

Your Committee has amended this measure by making technical nonsubstantive changes for clarity and consistency.

As affirmed by the record of votes of the members of your Committee on Ways and Means that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1843, as amended herein, and recommends that it pass Third Reading in the form attached hereto as S.B. No. 1843, S.D. 1.