Managing Contractual Risks on Projects

As a Manager, one is involved in projects right from the stage where contracts are being signed. While a Project Manager cannot be a lawyer himself, and is expected to have organizational support from the legal angle, here is an excerpt that serves as a good high level checklist to Managers :

Every contract has risks that must be reviewed from the perspective of protecting the state's assets and interests. This document provides you with guidelines and tools to help you manage those risks when you contract on behalf of the state. An inherent part of contract management is to:

1. Evaluate the risks involved;

2. Decide whether to avoid, transfer, or accept the risks; and
3. Implement appropriate risk transfer and/or risk financing mechanisms.

Read the contract thoroughly and anticipate events or situations that could happen within the scope of work outlined. Ask yourself:

1. Who are all the parties involved?
2. What kind of work is being done?

3. What type of accidents or losses could occur?

4. What is the worst-case scenario in terms of financial loss and/or injury to persons or property?

5. Are the responsibilities for the risks appropriately placed with those in the best position to control them?

6. What is each party's ability to manage the risks and absorb the losses?

7. Is the contract legal and enforceable?

Within the contract, risk transfer is accomplished through a combination of indemnification, hold harmless, and waivers of subrogation clauses. Insurance is commonly required as a means of providing the financial support to back the indemnitor's obligation to hold the indemnitee harmless.

These are generic of course, and appropriate customizations will be applicable for respective kinds of projects. Here is another nice article on the various aspects of contractual risks.


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