Desktop version

Home arrow Sociology arrow A short guide to contract risk

CONTRACT OPPORTUNITIES: FAVORABLE OUTCOMES, BENEFITS AND PREDICTABILITY

Despite its importance for business and entrepreneurs, contract opportunity is a surprisingly recent topic for practical and theoretical discussion. Corporate risk managers are in an established profession, opportunity managers are not. While contract risks and legal risks are frequently discussed, contract opportunities and legal opportunities are not.

Contract opportunities can be viewed in many different ways. one way is to see them as opportunities offered by contracts. This book will discuss these opportunities, including opportunities to use contracting processes and documents to remove uncertainty and provide predictability; to articulate, align, and clarify expectations; to coordinate and manage internal and external resources; and to manage and monitor quality, projects, and risks. Contract opportunity can also mean "upside risk” in the content of contracts: events that could affect contractual objectives beneficially, or the possibility that a contract will lead to a positive deviation from the expected outcomes. Again, these outcomes may be business outcomes or legal outcomes.

When used proactively, contracts can help remove uncertainty and provide predictability. This opportunity offered by contracts can be used to remove uncertainty related to performance and the parties' roles, rights, and duties. or it can be used to remove uncertainty from the contract formation process by providing the parties with confidence that the legally binding commitment is clear. For lawyers, predictability is also about predicting the way in which a contract, intertwined with the applicable law, will be interpreted and applied if a legal dispute arises.

As noted earlier, reaching business objectives should be the ultimate goal of contracts. From a business point of view, exceeding those objectives is a good thing. From a legal point of view, things may look slightly different. In a legal assessment of contracts, any deviation—even one that a business person might normally welcome, such as early delivery or delivery of excess quantity, can be risky. unless expressly provided for in the contract, a deviation can constitute a breach of contract— even when the likelihood of a loss and a claim are non-existent. For example, delivery of excess quantity can constitute a breach that might be used by a buyer looking for a reason to terminate the contract. In contract law, there are many categories of negative deviations and their consequences, while positive deviations are hardly ever touched upon. Even in other fields, extraordinary performance, exceeding expectations, and positive deviance are seldom discussed in the context of contracts.[1]

Practitioners and researchers agree that the concept "opportunity” clearly refers to something favorable, something that will have a positive impact on objectives, yet they have different views as to its definition, causes, and effects. Two schools of thought exist: one suggesting that opportunities are discovered and another suggesting that opportunities are created. We take the view that it is equally important to create opportunities as it is to discover them. Contracts offer tools for both. As we will see later in this book, contracts offer opportunities for requirements management, quality management, and risk management. When a disturbance occurs, contracts can help bring the relationship back on track. Even contract risks may offer opportunities: a claim may bring opportunities for additional sales or new product development.

Whether the aim is to reach or to exceed contractual objectives, businesses should not let an overly legalistic view of contracts prevent them from recognizing and making use of contract opportunities. As already stated, perceptions and attitudes play a major role here. If the attitude is "contracts are just for lawyers,” business managers will alienate themselves from the contracting process and thereby lose opportunities for favorable outcomes, benefits and predictability that contracts can offer.

  • [1] Exceptions include Cameron, K. and Lavine, M. (2006) Making the Impossible Possible. Leading Extraordinary Performance. The Rocky Flats Story. San Francisco: Berrett-koehler Publishers. the book is about the contract for the cleaning up of the RockyFlats nuclear weapons plant. Estimates projected that the cleaning up and closing of thefacility would take 70 years and cost uS$36 billion. the project was completed 60 yearsahead of schedule and uS$30 billion under budget.
 
Source
< Prev   CONTENTS   Source   Next >

Related topics