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Home arrow Sociology arrow A short guide to contract risk


This chapter discusses risky terms and issues in contracts. it examines contract risks that impact business objectives (performance, benefits) and those that impact legal objectives and illustrates that in many cases, these two types of risks are intertwined. To succeed in managing risky terms and issues in contracts and benefit from this chapter, you should:

  • 1. use contracts proactively as planning and decision making tools to safeguard that risks are taken knowingly, balanced with reward, and managed. Here, the key word is knowingly.
  • 2. Remember that allocating or transferring the risk to the other side does not make the risk disappear. You still must identify and respond to the risk.
  • 3. Make sure your organization recognizes that contract terms dealing with risk extend beyond those mentioning risk or addressing legal concerns and include clauses dealing with performance concerns. The right contract structure and terms can make all the difference between success and failure and can play a key role in customer and supplier satisfaction.
  • 4. Focus on high-risk issues, such as scope and performance and who is responsible for outcomes. use your contract literacy to make sure there are no unrecognized risky terms or gaps that leave room for misunderstandings and unintended liabilities.
  • 5. Be aware of the risks related to unlimited liability, whether created through visible (express) or invisible (implied) terms. Do not accept such liability or expect your contract partners to do so without appropriate balance with the reward.
  • 6. Do not accept anything in the contract you do not fully understand. Even boilerplate provisions and the small print can have a major impact on the success of your company.

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