Handling contractual indemnities
Published 24 August 2022
Applies to England
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This publication is available at https://www.gov.uk/government/publications/academy-trusts-handling-contractual-indemnities/handling-contractual-indemnities
This document explains how academy trusts should handle contracts that have indemnities.
The expectation from the Education Skills Funding Agency (ESFA) is that academy trusts do not require prior approval to enter into contractual indemnitees that would be considered part of the normal course of business. The definition for the normal course of business can be found in Managing Public Money, which is set out in Annex 5.4.
What is an indemnity?
An indemnity is a contractual agreement of one party (indemnifier) to compensate a loss to the other party (indemnity holder), due to the actions of the indemnitor or any other party. Indemnities are included in agreements usually to offer protection to one party in the agreeing to the contract if one party cannot fulfil their contractual obligations.
Handling indemnities within the normal course of business
Indemnities are usually found within contractual agreements that academy trusts sign on a routine basis. These indemnities can also be explained as non-statutory commitments. For academy trusts the ESFA considers these types of contracts to be within business as usual.
Some examples of what these contracts may look like are:
- a catering contract that supplies catering services to students and staff
- a data-sharing agreement that ensures information transfers between organisations
- an energy contract that supplies electricity / water / gas to the trust’s buildings
- a commercial IT contract which supports the academy trust run business as usual
- a land transaction contract for the buying or transfer of land to a trust
Academy trusts should assess contracts that contain indemnities and understand where they are within the normal course of business. The ESFA expect academy trusts to maintain a contract register of known indemnity clauses with the necessary assessments. Trustees should also provide the appropriate oversight and challenge to the trust to ensure the appropriate assessments and record management is maintained.
Academy trusts must obtain their own independent legal advice before entering into any contractual agreement. ESFA approval is needed when indemnities are novel, contentious, or repercussive and is therefore not considered under the normal course of business.
Novel, contentious or repercussive indemnities
Where a contractual indemnity is outside of the normal course of business and is therefore considered novel, contentious or repercussive, prior approval from the ESFA is needed.
Further guidance can be found in the Academy Trust Handbook - Part 5: Delegated authorities.
If you are unsure whether an indemnity is novel, contentious or repercussive, please seek independent legal advice.
Contact us
ESFA prior approval is required for all indemnities that are novel, contentious, or repercussive. Please use the ESFA contact form when requesting approval.