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Home arrow Sociology arrow A short guide to contract risk


Even when contracts are as clear as possible, major issues can arise from a disconnect between the sales or procurement process and later implementation and management. After negotiating and signing, the parties should follow the plan embodied in their contract(s). People on the operational and delivery teams need information contained in contracts to coordinate in-house and outsourced functions, manage budget, scope, schedule, resources, and so on. In large, multilocational organizations, the teams in charge of a project and the related contract(s) may change several times. Many businesses and people still do not see contracting as a process, but rather as a series of unconnected steps that result in the creation of a set of documents at some point and then delivery and implementation by an operational team only distantly, if at all connected, to the team that negotiated those documents. The lifecycle may consist of a series of fragmented activities rather than a managed process.

Figure 3.2 illustrates typical phases in a delivery project inside one organization. As illustrated in the figure, there may be several gaps in the project contract process that need to be bridged. These are often a reflection of the lack of contract management and accountability.

the picture becomes more complex when several organizations and supply chains—or several chains or networks forming an entire ecosystem—are added. Even in a "simple” two-party contract, the buyer's solicitation team and the supplier's

Mind the gaps in the contracting process!

Figure 3.2 Mind the gaps in the contracting process!

proposal team may consist of people different from those on the contract negotiation team, none of whom may be part of the operational or delivery team. The teams may not meet and may just "inherit” from their predecessors the contract documents that they are expected to master and work with. Without guidance, delivering on the promises made in such documents is not easy.

On the sell-side, the operational team may need to implement the supply contract and to pass on to subcontractors the applicable terms (and risks) of that contract. This becomes especially complicated when dealing under global umbrella agreements—framework agreements made between group parent companies designed to be implemented at local level in several countries, all with their own jurisdictional, language, and other requirements.

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