Risk – is your contract set in stone?

Entering into a contract is a bit like the giddy phase of getting cosied up or married — everything appears rosy and full of excited anticipation. But there’s the real risk of things going wrong if the relationship isn’t nurtured or doesn’t produce the results that you expect. Ultimately, if the situation deteriorates — what happens then? Is divorce really your only option?

We are not stuck in the sort of matches created in the 18th century – married off to a suitable family rather than because we are in love. We have a wealth of knowledge at our fingertips (via the internet) and are more informed than ever before. If we are growing ever more circumspect in our love life, why do so many businesses stick their heads proverbially in the sand when it comes to business relationships and risks?

Manage risks

The more you discuss risks with your client, the more you can establish and outline:

  1. specific risk factors or events which could improve or derail your project (risk identification),
  2. the risk factors or events which are most likely or which would have the biggest impact on the project (risk analysis)
  3. who should manage, mitigate or bear the time and cost consequences should those risks occur, includings those which are beyond your reasonable control, such as a pandemic (risk allocation), and
  4. how you will manage, mitigate and review those risks as the project progresses (risk review).

Risks matter right from day one until the end of your relationship, even until the end of the project or asset. Think of the risk clauses in your contract as a bit like a pre-nuptial agreement — by thinking about possible future scenarios, you’re preparing the ground in case the worst happens. Risk events can cause massive change to the project and it might be possible to manage and mitigate those risks, or it may be necessary to quit while you can!

‘Get out’ (termination at will) clauses are relatively common in contracts when a business can basically call a halt to the project, possibly because of unforeseen risks but also simply because they have changed their mind. But this is the nuclear option: cancellation clauses attempt to circumvent risk altogether — only for the benefit of one company, and at the expense of the other.

What should you do?

There is no place for ‘get out’ clauses if there’s trust between the two companies. So why not take a more positive approach?

Your contract should include regular check-ins giving both parties an opportunity to raise any concerns, however minor or trifling. You want to positively encourage both client and supplier to highlight any concerns immediately. Don’t let issues fester or hope they will go away!

This gives you an opportunity to review options, put things right or decide a new course of action when it is simplest to resolve. If your client harbours doubts, concerns or complaints then however great your project is objectively, your client will – at best – feel bruised and beaten and – at worst – want to walk away from the relationship.

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