HIGH-RISK ISSUES IN CONTRACTS

Some high-risk issues are frequently encountered in contracts across different deals and industries. In this section, we discuss examples of such issues on a general level. in a later section, we cover examples of risky contract clauses.

SCOPE AND PERFORMANCE: WHAT THE CONTRACT IS ABOUT AND WHAT IS IN AND OUT OF SCOPE

A basic—yet often neglected—question in connection with contract risk planning is: What is the scope of the contract? While seemingly self-evident, often it is not, and misunderstandings easily occur that can create a major contract risk for the supplier and the buyer alike. If the scope, specifications, or requirements are unclear, everything is unclear. The risk for the buyer is having to live with and pay for something that is not desired, while the risks for the supplier include not getting paid, and exposure to claims for damages, and perhaps cancellation. Both sides face the risk of engaging in a bitter, time-consuming and expensive dispute.

As stated in Chapter 2, disputes usually arise when someone has a sense of injury. this often results from a disappointed expectation. Some (but not all) of the expectations in a transaction or relationship are created by contractual provisions that describe what a party can or must do.^[1]

Managing expectations is crucial, and requires communication. For the supplier, this entails finding out what the customer wants, guiding the customer to want what the supplier can provide, and clarifying what can be done within the framework of the proposed contract. Sometimes it is about making sure both parties are aware of the delivery limits and what will not be provided—that is, what is in and what is out of scope. Communication and clarity about scope, specifications and requirements promote shared expectations and reduce the possibility that one party's acts or failures to act will cause a disappointment for the other. in Chapter 6, we return to the issue of expectations, which are often invisible, and introduce visualization as a way to clarify and manage expectations and make the invisible visible.

• [1] See, generally, Dauer, E.A. (2006) the role of culture in legal risk management. In P. Wahlgren and C. Magnusson Sjoberg (Eds.), A Proactive Approach. ScandinavianStudies in Law, Volume 49. Stockholm: Stockholm Institute for Scandinavian Law, pp.93-108, 95, available at http://www.scandinavianlaw.se/pdf/49-6.pdf.