Introduction

WHY THIS BOOK AND THIS TOPIC?

In today's business environment, contracts are everywhere. Contracts govern companies' deals and relationships with their suppliers and customers. They impact future rights, cash flows, costs, earnings, and risks. A company's contract portfolio may be subject to greater losses than anyone realizes. Still the greatest risk in business is not taking any risks. Contracts should support sound risk-taking and help balance risk with reward. This book is designed to help business, project and risk managers, as well as contracts and legal professionals, find and achieve the right balance.

These managers and professionals find themselves preparing or reviewing contracts, requests for proposals and quotations. Whether involved in sales, procurement or projects, many handle contractual data and documents on a daily basis, but very few have received training in the area. Many lack the confidence that comes with mastering the topic. Lawyers are not trained in contracts either—they are trained in contract law. Apart from contract law, success with contracts and contract risk requires knowledge and skills in many other aspects: technical, financial, operational, and so on.

If contracts fail, a lot is at stake. In addition to potential financial loss, goodwill and reputation may be at risk. Contract disputes are expensive and consume time and resources that should be used for productive work. Yet contract failure and disputes are not inevitable: using the proactive approach emphasized in this book, problems can be prevented and the likelihood of successful business relationships can be increased. This book offers knowledge, skills and tools that can help in this venture. At the same time, the book seeks to enhance collaboration and communication between business, project, and risk managers on one side and contracts and legal professionals on the other, across functions and disciplines.

The foundation of identifying and managing contract risk is what we call contract literacy: a set of skills relevant for all who deal with contracts in their everyday business environment, ranging from general managers and CEos to sales, procurement and project professionals and from risk managers to contracts and legal professionals. Equipped with the concepts in this book, companies can start to see contracts differently and to use them for business success, problem prevention, and risk mitigation. This book focuses on contract risk and contract opportunities, suggesting ways in which companies can manage both.

This book is not targeted toward any specific country or industry. its core content and examples are chosen so that they are applicable to contracting within and across borders anywhere. While the book uses examples involving companies, its core contents are useful for public organizations as well. our focus, however, is on business-to-business dealings, where the parties can "make their own law” through their contract, which also includes the freedom to choose the law that applies. The book focuses on general problems and general solutions and is not meant to supply direction on how to handle legal issues, or to provide or replace legal or other expert advice. Appropriate legal or other professional advice should always be obtained and relied upon before taking or omitting to take action in respect of any specific problem.

While the authors of this book are lawyers and we discuss a number of legal aspects related to contracts, we do not see contracts merely as legal tools. Contracts are not made for the legal department or future litigation; they are made for business, in order to reach business objectives. Among these objectives, winning in litigation hardly ever takes top priority. So we seek to take a balanced, down-to-earth, managerial-legal approach. Our goal is to enable shared understanding that leads to legally sound contracts, contracts that can be used as managerial tools for well thought-out, realistic risk allocation in business deals and relationships and that are implemented successfully in a way that meets the parties' expectations.

This book is designed to help companies use their contracts and contracting processes proactively to achieve their business plans and to think through potential contingencies that may affect the outcomes of their projects, deals and relationships. The book demonstrates the increasing importance of contracts and the risks and opportunities they pose, illustrates the potential impact of exposure to contract risk, and outlines the key elements of effective risk management, along with ways to negotiate successful, risk-aware contracts.