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Home arrow Sociology arrow A short guide to contract risk

SUMMARY

This chapter has discussed sources of contract risk, many of which are unrelated to contract terms and legal issues. One common denominator here is the human dimension, the way people perceive contracts and risks, and its impact on business use (or non-use) of contracts for risk and opportunity management. in order to identify and manage the real risks, you should:

  • 1. Use contract literacy to tackle the real sources or risk and root causes of problems first. Look beyond contract documents, language, and traditional risk sources. The real risks may not show on risk registers—especially if these deal mainly with risk allocation and liability issues. Identifying the real risks involves recognizing perceptions—your own and those of your team members—and making sure you all see the big picture.
  • 2. Make sure that gaps in the contracting process, poor communication, or lack of proper contract management practices will not lead to unmanaged risks or opportunities.
  • 3. Remember that risk allocation (as opposed to true risk management) may lead to the illusion of control where none exists.
  • 4. Make sure your contracts focus on ways to enhance opportunities and increase the probability of positive outcomes rather than emphasizing the consequences of failure.
  • 5. instead of emphasizing contract clauses relating to liability limitations and indemnities, focus on a shared understanding of requirements and how they can be changed, along with provisions dealing with scope and goals, parties' responsibilities, and other Top terms of the Future listed in the right-hand column of table 3.1.
 
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