Contract Enforceability Is Related to Risk
Thus, a key function of a contract is to deal with various risks in one way or another, taking into account the past and anticipating future opportunities to prevent or minimize their future occurrence and impact. If the organization does not have policies, processes, and technologies in place to make ALL contracts visible, no matter where they come from in the organization, a complete picture of the overall contract risk cannot be developed. The performance of contract management activities, whether full-time or part-time, should be supported by policies to ensure that organizational requirements take precedence over the needs and desires of business units or departments. This need for guidelines applies to both contract management and any other risk reduction activity, such as.B. segregation of duties for procurement purposes. The Department of Risk Finance and Insurance has published recommended standards for contract risk management that apply to the various scenarios that most procurement managers, contract specialists or leasing agents are likely to encounter. In general, the most basic risk management tool that university buyers can and should use when entering into an agreement is to select and thoroughly review their counterparty to ensure that it has the means and skills to deliver the desired goods or to meet the agreed scope of services. In addition, those who draft and/or negotiate agreements should consider these attributes as a common practice for all contracts(2): mentoring by someone with experience and exposure to many contracts is necessary to develop the “contract risk seeking” muscle and keep it in good operational condition. Good storage is needed to do this with something like a 500-page IT outsourcing contract spread across multiple documents. Keep in mind, however, that it`s not that hard to remember the clues dropped in the first chapters of a 500-page novel as the end approaches and it becomes clear that the butler really did.
Although a contract doesn`t really read like a novel, the brain works mysteriously and with practice, this can be done quite effectively. It happens all the time, and it`s always a bad idea. If you don`t have a clearly designed commercial contract, you`re vulnerable to a number of things that can go wrong. Manual effort most likely requires a joint effort between contract management specialists and the legal team. To continue with the metaphor mentioned above of the equipment maintenance plan, the contract management support ecosystem is the equivalent of the workshop, tools, spare parts and manuals, engineers, etc. As a general rule, a contract does not contain a specific requirement for either party to comply with its obligations, but again, there may be exceptions to avoid doubt. When it comes to risk management, it`s important to understand the different types of business risks and the different consequences they have for your business. For contracts, the four most common risk categories are financial, legal, security and brand categories. This has implications for the identification of intrinsic risk in a contract when the type of knowledge required to draft the contract is not available for review.
It takes commitment, a concerted effort, an enlightened organizational mindset, the right people, the right training, appropriate contract management technologies, and a range of elements needed to create, deploy and implement a robust ecosystem to support contract management. Often, however, certain types of regulatory compliance are implicit and are simply expected as a general practice without specific statement in a contract. An example would be for the contracting parties to behave like good corporate citizens, which should not be necessary. Finally, if it is not yet available, you should promote the idea that an excellent contribution to contract risk mitigation is a formalized explanation of the organization`s position on the absence or presence of certain contractual clauses with their preferred attitudes and acceptable alternatives. However, a contract is often and perhaps should always provide for an obligation for one or more parties to provide timely and verifiable evidence of compliance with certain critical obligations. For each type of compliance breach, specific responses may be required in the contract if the obligations in question are not regulatory obligations, as the legislation covers these responses. We assess the risk based on its probability of occurrence and its magnitude of impact. First, consider a contract between two companies for the supply of certain products and services.
The likelihood that a problem with the contract will occur during its term may or may not be easily predictable. B for example if the supplier is unable to fulfill the orders. However, the flexibility to deal with non-specific uncertainty should certainly be there. This can be as simple as being able to negotiate contract changes when one or more parties are negatively affected by unusual or uncertain circumstances. If you would like more information about contractual risks and in particular how Gatekeeper can help you with risk management, contact us today for a free consultation. These people may do a great job of managing such contracts or think they are, but that may not be the case. You may have been lucky so far. Few people on campus have the authority to sign and enter into agreements and contracts on behalf of the university: a very useful by-product of the review process is the ability to advise the legal team on the shortcomings identified in the contract, especially with regard to risks. During deliberations between the parties and BEFORE any signature is made on legally binding documents, it must be considered whether the risks of the agreement have been adequately addressed. This should be done with a competent person who was not involved in the negotiations, who reviews the documents. Legal risks arise when you have a breach of contract with potential for legal liability or litigation. There are several types of legal risks, including regulatory, compliance, and litigation risks.
For contract management, your legal risk may arise from the absence of contractual obligations and compliance requirements such as HIPAA, HITECH, OSHA, Sarbanes-Oxley or other regulations. It can also be the result of accusations of intellectual property (IP) infringement, improper or improper use of correct legal clauses, confidentiality disclosures and other contractual disputes. It is therefore important that the accepted level of risk is recognised and assigned to the contract in some way at the end of the negotiations, for example in the form of a risk register. Without this information, the risk due to the divergence of position is invisible from the outset. Many contracts have a low readability index, which is not necessarily based on a readability formula score, but violates the basic standard principles for clear communication. Keep in mind that there are many more types of contractual risks than the ones discussed here. Some will be esoteric and delicate, which means that the advice of lawyers will be necessary. Others will be more operational, for example by watching. B that service level agreements that govern supplier performance are relevant, measurable and supported by sufficient teeth to promote compliance.
Realistically, all but the simplest and shortest contracts lack linearity. Gaining a clear understanding of convoluted contracts through numerous cascading references is a skill that requires practice. In addition to risk attribution clauses, it is common for assignors to require assignees to wear certain types and amounts of commercial insurance to ensure that financial resources are available in the event of a loss. Since it is likely that the seller, independent contractor or typical owner of Harvard`s supply chain does not have sufficient liquidity, it should be required to meet its claims obligations in the event of a major disaster, all sellers and independent contractors who sell goods to Harvard are present at Harvard`s premises or provide services to Harvard or perform work on behalf of Harvard, be required to maintain a minimum level of commercial insurance covering claims or losses. resulting from the delivery of such goods and/or services. This obligation to maintain insurance also applies to all persons and/or entities that indirectly provide goods and/or services to Harvard through such suppliers/contractors (p.B. “Subcontractors”). [Note: Contractors that provide construction services and companies that provide building design or engineering services to capital projects (as defined by Harvard CAPS) should instead comply with the minimum insurance amounts set out in Harvard`s standard construction and design contracts available on the Capital Projects Website (CAPS).