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Contract Ratification Indemnity

Contract Ratification Indemnity

Definition

A type of political risk insurance that pays a proportion of the contractor's start-up costs that may not be recoverable from the purchaser/employer in the event that an overseas contract is not finalized for reasons outside the contractor's control. It is common practice for contractors/sellers to place orders and mobilize a plant at site as soon as a foreign contract is signed. However, if at this stage certain conditions remain to be fulfilled before a contract becomes binding upon both parties, the contractor/seller could be liable for all expenses so incurred should the conditions precedent not be met, and the contract is, therefore, never ratified. Contract ratification indemnity coverage is designed to insure this exposure.

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